V.S Deshpande, J.:— The questions which were before the trial Court also arise in this appeal, viz., (1) what was the duration of the contract by which Respondent S.N Pandit was employed by the appellant India International Centre (hereafter called “the Centre”) and (2) whether the termination of the respondent's service by the appellant before the expiry of the duration was in breach of the contract and if so to what damages is the respondent entitled. These questions have been determined by the trial Court and would have to be determined in appeal primarily on the basis of the pleadings of the parties, the issues framed, and the evidence adduced before the trial Court. If the facts had been differently pleaded, differently put into issues and proved, a different view of law could perhaps have been taken. But, as will be shown later, such a different case cannot now arise on the existing record.
PLEADINGS :—
2. In a suit for damages for breach of contract of employment filed by Pandit against the Centre, the terms of the contract were exclusively stated in paras 12 to 14 of the plaint. Offer of employment by the Centre to Pandit was made on 19th April 1961. Pandit replied on 30th April 1961 accepting the terms but requesting for the addition of two more terms, namely. (1) that his designation should be Manager and not Hostel Manager, and (2) that the term of service should be at least five years. In the eye of law, this was a counter-offer. It was accepted by the Centre on 14th May 1961 adding that contract suitably worded would have to be carefully drawn up. However, no formal contract was ever drawn up. On 18th May 1961 Pandit thanked the Centre for appointing him as a Manager for a contract period of five years. In the written statement, the Centre completely admitted paras 12 and 13 of the plaint which contained the basis of the plaintiff's case that the contract of employment was confined to the four letters mentioned above and that the term of his employment was to be at least five years. The Centre purported not to admit para 14 and to deny the interpretation placed by Pandit on the letter of 14th May 1961. The Centre, however, did not take up the stand that the contract was not confined to these four letters. The construction of the duration of the contract pleaded by the Centre was two-fold. Firstly, it was stated that the contract for five years' service was never stipulated and Pandit accepted his appointment on 18th May 1961 without any stipulation as to the contract for five years. This assertion was in flat contradiction of the admission of paras 12 and 13 of the plaint and the letters which specified the period of contract as being for five years. Secondly, it was stated that the Centre never intended to offer to Pandit a firm and unqualified tenure of office for five years. The intention of the parties, as mentioned in the letter of 14th May 1961, was that a written contract would have to be entered into which would embody all the terms. A provision would have then been made in it for the termination of the contract with reasonable notice on either side. That such was the intention of the parties would be clear from the plaintiff's letter of 13th February 1961 and its enclosure. The plaintiff understood the security of tenure only to mean a reasonable period of notice. Pandit started working on 1st July 1961. On 28th December 1962, the Centre terminated the employment of Pandit forthwith stating that three months' pay in lieu of three months' notice would be later paid to him. On 2nd January 1963 Pandit asked for being supplied with the grounds of his dismissal. On 5th January 1963 the Centre, replied that the employment was terminated not as disciplinary action but by the offer of salary for three months in lieu of three months' notice.
3. Consistantly with his stand, Pandit asserted in paras 23 to 25 of the plaint that the termination of his employment before the expiry of the period of five years beginning from 1st July 1961 and ending with 30th June 1966 was a breach of the contract of employment. The damages claimed by him were the salary that would have been payable to him for the remaining period of the contract of service. In the replication, he also alleged that the Centre refused to give him a certificate and he was not able to get any alternative employment during the remaining period of the contract of service. The defence of the Centre to the plea of damages is that either the termination of the employment was legal or alternatively that Pandit was not entitled to damages beyond the salary for three months which was the period of reasonable notice by which his employment could be terminated.
ISSUES:
4. On the above pleadings, the inevitable issue which arose and was tried by the trial Court was whether there was a contract of five years between the parties. By the expression “contract of five years” was understood a contract for fixed period which could not be terminated before the expiry of the said period except for cause such as misconduct or inefficiency. The plea of the Centre that even Pandit had understood that the security of his tenure was restricted only to a reasonable period of notice and that the provision for the termination of the employment by a reasonable notice was to be entered into a formal contract later was considered by the trial Court as a part of this issue. The only other relevant issue was the basis for the ascertainment of the damages and their quantum.
EVIDENCE:
5. The duration of the contract was determined by the trial Court and has to be determined by us now exclusively on the basis that the contract consisted only of the four contract documents. This was the case set up in paras 12 to 14 of the plaint and admitted in paras 12 to 14 of the written statement. The difference between the parties related only to the interpretation of the documents. In supporting his case as P.W 9 Pandit explained that these documents constituted the contract and could mean only one thing, namely, that the contract of employment was for a fixed term of five years. Prior to the formation of the contract, certain preliminary negotiations took place between Pandit and the Centre. On 13th February 1961, Pandit had given to the Centre background information regarding his qualifications and experience. In stating his expectation from the Centre, Pandit stated as follows:
“Now if my services are required by the Centre I will be leaving the Institution like the Reserve Bank of India which offers me fairly good prospects and security. In view of this, I suggest some arrangement by which my employment at the centre will be protected to some reasonable extent. By saying this I mean that the termination of my services from either side should require notice for the period of six months or so. This may or may not appear in the shape of written agreement, but I would request the respected members of the board (of the centre) to appreciate my position and give me at least some moral assurance to this effect. ”
In a letter of 11th March 1961 to the Centre, Pandit had enquired of the Centre “if you want me for a short period” etc. When these two letters were put to Pandit in cross-examination, he explained that his agreement with the Centre regarding the term of contract was arrived at after 11th March 1961. This evidence is in keeping with the case in the plaint which was admitted in the written statement that the contract was formed exclusively by the four documents executed in April and May 1961. It is well settled that the meaning of the contract documents cannot be varied or influenced by what happened during the pre-contract negotiations. It is not the case of either party that the letter of 13th February 1961 or of 11th March 1961 was a part of the contract. On the other hand, the common case of both the parties is that the offer of employment was made to Pandit for the first time on 19th April 1961.
6. It is significant that the Centre has not taken the stand that the contract was formed by the total correspondences between the parties beginning from 13th February 1961. Had the Centre wanted to set up such a case it would not have admitted the plaintiff's case that contract was confined to the documents of April and May 1961. It would have then pleaded that the letters of 13th February and 11th March 1961 should be read with the letters of April and May 1961. The issue which would then arise was whether the contract of employment was terminable by a six months' notice referred to in the letter of February 13, 1961. It would appear that the Centre was disabled from taking such a stand because on 28th December 1962 the Centre purported to terminate Pandit's service by three months' notice thereby taking the stand that the letter of 13th February 1961 was not a part of the contract. The Centre never retracted from this position but stuck to it through the pleading, issues and the evidence. We cannot, therefore, now make out such a case for the Centre.
7. It is significant that the letter of 13th February 1961 has not been included in the paper-book printed in this appeal apparently because even till now it is not the case of the Centre that it formed a part of the contract. Consistantly with this, the letter of 19th April 1961 by the Centre to Pandit offers the employment to him without reference to the earlier letter of 13th February 1961, or 11th March 1961. The reason is that the offer made by the Centre did not include the term relating to either the six months' notice period or the socalled short term of the contract. Pandit was bound to notice the absence of these terms from the offer. Apparently, he combined these two terms and made a counter-offer on 30th April 1961 asking for “a contract service for a period of five years or so whereafter further renewal will be under mutual agreement”. These words expressed the term of the contract to be five years dispensing with the question of the period of notice altogether. If the Centre wanted to offer a contract only for an indefinite period and not for a fixed term to Pandit, it should not have accepted this counter-offer of Pandit. But on 14th May 1961 the Centre wrote that “there is no objection on our part to designating you Manager or in giving a contact for five years as you desire. ” The only proviso added by the Centre was that a contract suitably worded would have to be carefully drawn up. This was never done. Therefore, the letters of April and May alone constituted the contract. Pandit reiterated on 18th May 1961 that he was thankful to the Centre for appointing him as Manager for “a contract period of five years”. The Centre apparently accepted this position and did not at any time state that the contract was not for five years but was for an indefinite period or that even though the contract was for five years still it was terminable by a reasonable notice or by six months' notice.
DURATION OF THE CONTRACT:
8. Duration of an employment contract may be of one of the three kinds :—
(1) A contract for an indefinite period the duration of which is determined only when it is brought to an end by a notice of reasonable period. The length of notice would depend on the nature of the contract, the status of the employee and other circumstances.
(2) A contract for a definite period binding both the parties to the master and servant relationship till the end of that period. This can be terminated only for a cause or justification such as misconduct or inefficiency.
and (3) A contract for a period stated and yet terminable by a notice of a reasonable period.
9. Shri G.B Pai, learned counsel for the appellant, (despite the pleading denying a five year term) could not seriously argue that the contract of the Centre with Pandit was of the first category, namely, for an indefinite period. He, however, argued that the contract was of the third category. The term of five years was not intended to be rigid because parties intended the contract to be terminable by reasonable notice. He submitted that there was an implied term in the contract that it was to be terminable by a reasonable notice. Such implication was sought to be drawn from the intention of the Centre that a formal contract document would be drawn up. In that document a term regarding termination of the contract by reasonable notice was to be inserted. Pandit was also to be governed by the rules to be made by the Centre from time to time. Such rules could provide for termination of his contract by a reasonable notice. Since no such rules have been made, the only question is whether the implication of the terminability of the contract by reasonable notice can be drawn from the intention of the Centre to draw a formal contract? Firstly, the only relevance of the drawing up of a formal contract is to know whether the contract could not be said to have been concluded in the absence of a formal document. It is nobody's case that the contract of employment with Pandit had not come into force. The basic on which a term is implied in a contract is quite different. It is to give business efficacy to the contract. The test of an implied term was expressed by Scrutton L.J in Reigate v. Union Manufacturing Company Limited, (1918) 1 K.B 592 at 605, (1) in the following oft-quoted words :—
“. . . . . if it is such a term that it can confidently be said that if at the time the contract was being negotiated someone had said to the parties, ‘what will happen in such a case?’ They would both have replied: ‘Of course, so and so will happen, we did not trouble to say that, it is too clear’. ”
10. Can we say that terminability by reasonable notice must be implied as a term in this contract expressed to be for five years? The pros and cons of the question may be considered fully in view of its importance.
PROS:
11. Though the normal presumption is that an ordinary contract is not terminable at the will of the parties unless it is discharged by performance the contract of service stands in a special class. The unenforceability of such a contract by specific performance inclines the Court to view such a contract as of an uncertain or indefinite duration. The inevitable consequence is that it must be terminable by a reasonable notice. Due to the insecurity of the employee in such a contract, the common law used to presume for a long time that a contract would be of the duration of one year unless the contrary was expressed. Significantly, the consequence was that it was not terminable except by reasonable notice expiring with the end of the year. The important thing to note is that it was not terminable during the one year. This fixity of the duration gave rise to the doctrine that even during the fixed duration the contract could be terminated for some justification such as the misconduct or the inefficiency of the employee or some other objectionable conduct of the employer. The expression “wrongful dismissal”, therefore, signified either of the following two different things, namely, (a) a dismissal wrongful because no proper notice was given, and (b) a dismissal wrongful because the contract was not terminable before the expiry of its duration. Because a contract of uncertain duration was terminable by a notice and a contract of certain duration was terminable for justification, the two reasons for termination were often confused. Whenever it was not clear in which category a contract falls both the reasons for termination used to be urged resulting in some confusion in thinking in the decision of courts. The presumption that a contract is for one year's duration gradually came to be abandoned in view of growing industrialisation. Hence the following statement of law in 25, Halsbury's Laws of England, 490. para 945 (Third Edition) :—
“If no custom or stipulation as to notice exists, and if the contract of service is not one which can be regarded as a yearly hiring, the service is terminable by reasonable notice. If a servant is taken into employment subject to the drawing up of a written contract of service which is never in fact drawn up there is contract of employment for an unspecified period which is terminable by reasonable notice. ”
From a study of the decisions cited therein it would appear that it is only contracts of indefinite duration which would be governed by this statement of law.
12. A further development of the indefinite duration of the contract was that permanent employment could not be construed to mean employment fixed for the life of the employee or of the employer. The greater the length of the tenure the more difficult it is to bind the parties, to a fixed duration. Such a contract would also, therefore, be terminable by a reasonable notice unless the duration was so clearly expressed as to show that a life-time employment was intended (Ibid., para 946 and McClelland v. Northern Ireland General Health Services Board, (1957) 2 All E.R 129) (2).
CONS :—
13. On the other hand, the employment for a definite period of say, one year in the first instance and so from year to year can only be determined by a reasonable notice which expires at the end of the same year of service (Chitty on Contracts, Vol. II, para 708 and the decisions cited therein). The present contract was for five years renewable at the will of the parties thereafter. There is ample authority to hold that it could not be terminated by any notice which would expire before the end of the first five years. Further, the need for giving some security to the employee against whimsical and arbitrary dismissal by the employer has been growingly reflected in judicial decisions. The law in India has developed differently from the common law in this respect. For instance, while Article 310 (1) of the Constitution reflects the common law that the employee holds his office during the pleasure of the employer, Article 311 (1) not only requires natural justice procedure to be followed before a disciplinary action, but Article 310 (2) clearly recognises that a fixed term duration of the contract of employment is not inconsistent with the general rule that employment for indefinite period is terminable by the employer by reasonable notice. A clear distinction is made in Article 310 (2) between a disciplinary dismissal for misconduct and an ordinary termination and indication is given that compensation should be provided when a contract of fixed term duration is terminated before the expiry of the duration. A White Paper explaining the attitude of the, United Kingdom Government was submitted to the International Labour Organisation in 1964 (Cmmd. 2548, December 1964) in which it was recommended that workers engaged for a specific period of time or a specific task in cases in which, owing to the nature of the work to be effected, the employment relationship cannot be of indefinite duration should be excluded from the scope of employment for an indefinite period. In S.S Shetty v. Bharat Nidhi Ltd. , Ltd., (1958) S.C.R 442, (3) only two English decisions were referred to with approval and both of them protected the security of tenure of the employee in a contract of employment of fixed term duration against its premature termination by notice. These decisions are Collier v. Sunday Referee Publishing Co. Ltd., (1940) 4 All E.R 234, (4) and Salt v. Power Plant Co. Ltd., (1936) 3 All E.R 322 (5). In considering whether the termination of the service of an employee was wrongful, the Supreme Court laid down the following criteria at page 456 :—
“The Industrial Tribunal would have to take into account the terms and conditions of employment, the tenure of service, the possibility of termination of the employment at the instance of either party, the possibility of retrenchment by the employer or resignation or retirement by the workman and even of the employer himself ceasing to exist or of the workman being awarded various benefits including reinstatement under the terms of future awards by Industrial Tribunals in the event of industrial disputes arising between the parties in the future. Even in the case of ordinary contracts between master and servant such considerations have been imported by the courts. ”
“While there is ample authority for the proposition that a contract which is expressed to be for a particular duration cannot be terminated before the expiry of the duration except for justification, there is practically no authority for the proposition that a term can be implied in such a contract that it can be still terminated before its expiry by a reasonable notice. ”
14. What is the object of fixing the duration of the contract? “Plainly to express the intention of the parties that the contract would last that long. If terminability by reasonable notice before the expiry of the period is to be implied in such a contract, the intention of the parties that the contract is to last for a stated period would be defeated. Such an implied term would be inconsistent with the express term as to the duration of the contract. The unenforceability of a service contract by specific performance does not mean that the fixing of the duration of an employment contract is an exercise in futility. For, specific performance is not the only remedy available to the parties. Damages on the basis that the contract was for a fixed term are also available. Terminability at will cannot, therefore, be read as an implied term in a contract the duration of which has been fixed. ” It is to be remembered that an employment contract of a fixed duration does not mean that the parties must stick to it at all events. It only means that none of the parties can terminate it at his sweet will or whim. It is always terminable for justification such as misconduct or inefficiency of the employee or some other objectionable conduct of the employer. On the contrary, “it would lead to injustice if we bold that whether a contract is for a fixed term or for an indefinite term it can be always terminated without cause at the will of the parties. Such a finding would obliterate the basic distinction between a contract for uncertain duration and one for a fixed duration. Uncertain duration necessarily implies termination by reasonable notice. Otherwise parties would be bound to it till the end of time which would be absurd. For the same reason, certain duration implies that it cannot be terminated before its expiry without justification. ” The law in India under the Constitution as also in industrial adjudication under the Industrial Disputes Act and other allied statutes has recognised this distinction as a basic one. This is why the first two categories of the duration of employment contracts stated above are distinct from each other. It is true that the third category urged by Shri Pai also exists and a contract for stated duration, particularly if the duration is a long one, can also be made terminable by a reasonable notice. This is because though the parties intend to stick to the stated duration of the contract, they are not sure that they would be able to do so for a comparatively long period. The permanency or the stated long duration of employment contract can co-exist with a provision for its premature termination by a reasonable notice as it did in S.S Shetty v. Bharat Nidhi Ltd. Ltd. (3) referred to above. But the terminability by notice must be specified as a term of the contract to negative the effect of the permanency or the stated duration. It cannot be implied as such implication would be contrary to permanency or stated duration. In Mc Clelland v. Northern Ireland General Health Services Board (2) referred to above, the decision in Salt v. Power Plant Co. Ltd. (5) was sought to be explained away in the dissenting judgment of Lord Keith. Firstly, the very fact that this was done in a dissenting judgment would show that it was not the law laid down by the majority. Secondly, Salt v. Power Plant Co. Ltd. (5) was cited with approval by the Supreme Court in S.S Shetty v. Bharat Nidhi Ltd. Ltd. (3). We may conclude, therefore, that, the law in India (quite independently of the law in England) does not allow us to read in a fixed term contract of employment an implied term that it can be terminated at the will of the employer. Such a term must be expressed but cannot be implied.
BASIS OF THE DAMAGES :—
15. Having found above that the contract between the parties was for a term of five years in which terminability at the pleasure of the employer cannot be implied, it follows that the termination of the contract of employment by the Centre before the expiry of the stated duration of five years amounted to breach of the term of employment. The basis on which the damages for the breach are to be calculated is well settled. After referring to the statement of law in Chitty on Contracts, the Supreme Court observed in S.S Shetty v. Bharat Nidhi Ltd. Ltd. (3) referred to above at page 453 as follows :—
“If the contract of employment is for a specific term, the servant would in that event be entitled to damages the amount of which would be measured prima facie and subject to the rule of mitigation in the salary of which the master had deprived him. (Vide Collier v. Sunday Referee Publishing Co. Ltd. (4). The servant would then be entitled to the whole of the salary, benefits, etc., which he would have earned had he continued in the employ of the master for the full term of the contract, subject of course to mitigation of damages by way of seeking alternative employment. ”
The trial Court was, therefore, justified in assessing the damages payable to the plaintiff on the basis of the salary that he would have earned from the Centre during the remaining period of the term of his service contract.
16. Pandit was of course bound to mitigate the damages. The following circumstances would show that he has done all that be could. He was in respectable employment of the Reserve Bank of India before he came over to the Centre. He was already aware of the difficulty of securing new employment on the expiry of an existing one. This was why from the very beginning he was seeking a reasonable amount of security of his employment in the Centre. The provision for a five year term was such a reasonable amount of security. Security was not absolute because the Centre could terminate his employment for inefficiency or misconduct. The unemployment situation in our country is well known. Pandit asked for a certificate from the Centre on the basis of which it could have been easier for him to get alternative employment but the Centre refused to give him a certificate. This made his task to find alternative employment more difficult. He advertised in a newspaper and also applied for several posts but was not successful in getting an alternative employment. He had to bring the suit in forma pauperis. He is a qualified person with a specialised experience. There is nothing to show that he has willfully become an idler to get his full salary from the Centre. The burden of proof thereafter shifted to the Centre to show that Pandit either could have obtained employment or has obtained one before the expiry of the five year term of the contract. This burden has not been discharged.
17. We, therefore, agree with the findings of the trial Court that the termination of Pandit's employment by the Centre was a breach of contract and Pandit is entitled to the salary for the remainder period of the term of his contract as damages including the unpaid salary from 1st December, 1962 to 27th December, 1962 and the leave salary for 50 days with allowance for 18 months service in accordance with the terms of his service. The trial Court has rightly disallowed the claim for Rs. 5000/- as consultation fees. The judgment of the trial Courts is, therefore, upheld and the appeal is dismissed. In the circumstances we make no order as to costs.
Appeal dismissed.