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Synopsis

The Supreme Court on December 11, 2024, observed that matters related to nonpayment of wages and termination of an employee are subject to the jurisdiction of statutory authorities, to the exclusion of civil courts, and are not arbitral.

The apex court set aside the Madras High Court's order on appointment of an Arbitral Tribunal in a matter related to nonpayment of wages and legality and propriety of termination of an employee pending before the statutory authorities for being non-arbitral.

A bench of Justices P S Narasimha and Sandeep Mehta allowed a civil appeal filed by one Dushyant Janbandhu and dismissed the application filed by M/s Hyundai Autoever India Pvt Ltd under Section 11(6) of the Arbitration and Conciliation Act with Rs 5 lakh as cost to be payable to the appellant within three months.

Having considered the factual background in which the Section 11(6) petition had been filed, the bench opined that it was an abuse of process.

"It was clearly intended to threaten the appellant for having approached the statutory authorities under the Payment of Wages Act and the Industrial Disputes Act," the bench said.

The court also found that there was no basis for invoking clause 19 of the agreement related to the non-disclosure clause and demanding compensation of Rs 14,02,822 when that fact situation did not arise.

"The Section 11(6) petition has two facets. The first relates to disputes that were anyway pending before the statutory authorities, and they related to non-payment of wages and legality and propriety of termination which are non-arbitrable. The second facet relates to the alleged violation of clause 19 relating to non disclosure obligation, which was not raised in the show cause notice, inquiry report, chargesheet and termination order and as such is non-existent," the bench said.

In the appeal, the appellant employee questioned the appointment of an arbitrator by the High Court of Madras under Section 11(6) of the Arbitration and Conciliation Act, 1996.

He raised the ground that the dispute with the respondent-employer, M/s Hyundai AutoEver India Pvt Ltd was governed by statute under the Payment of Wages Act, 1936 and the Industrial Disputes Act, 1947.

"In the normal course and in recognition of judicial restraint, as incorporated in Section 5 of the Act, we would have asked the appellant to raise these objections before the Arbitral Tribunal itself. However, as the narration of facts speaks for itself, we have found that the application under Section 11 of the Act is a clear abuse of the remedial process. We have therefore allowed the appeal and dismissed the Section 11(6) petition with cost," the bench said.

As per facts of the matter, the appellant was appointed as an Assistant Manager on March 15, 2019. Within a year, due to Covid-19, pandemic, the appellant was asked to work from home from March 22, 2020 to January 06, 2021. However, the respondent called upon the appellant to resume physical attendance of office from August 2020. As the appellant refused to comply, a show cause notice was issued on September 04, 2020, followed by an inquiry.

A charge memo was issued on November 25, 2020, for violating certain contractual clauses and these related to non-cooperation and absenteeism.

"It is necessary to mention here itself that there is no reference to Clause 19 of the appointment conditions relating to violation of the non-disclosure obligation," the bench noted. Ultimately, an order of termination was passed on January 21, 2021.

The bench noted that there was no allegation whatsoever that the appellant had violated clause 19 related to non-disclosure of the appointment order leading to the order of termination.

As the appellant was not paid wages during the pendency of disciplinary proceedings, he issued a legal notice. As a counterblast, the respondent issued a notice alleging that the disputes must be settled through arbitration and proceeded to unilaterally appoint an arbitrator.

"Even in the said reply notice issued by the respondent, there is no specific allegation of violation of the non-disclosure obligations by the appellant herein. The claim for arbitration naturally related to stoppage of payment of wages, which according to the appellant was within the jurisdiction of the Authority under the PW Act as per its statutory provisions," the bench pointed out.

As the unilaterally appointed arbitrator commenced the arbitral proceedings, the appellant filed an application under Section 16 of the Act calling upon the arbitrator to rule on his competence.

"It is interesting to note that the arbitrator himself passed an order on May 01, 2022 taking into account the decision of this court in Perkins Eastman Architects DPC & Anr Vs HSCC (India) Ltd (2020) and closing the arbitral proceedings," the bench said.

The respondent moved an application under Section 8 of the Act seeking reference of the dispute involved in the petition under Section 15(2) of the Wages Act to arbitration. The Authority, however, dismissed the said application holding, “In view of Section 23 of the Payment of Wages Act, arbitration agreement cannot stand in the way of the claimant in respect of illegally deducted wages under Payment of Wages Act".

The appellant questioned his termination before the Industrial Tribunal which was pending adjudication.

The respondent approached the High Court by filing a petition under Section 11(6) of the Act in August 2022 seeking appointment of an arbitrator.

"The disputes between the appellant and the respondent, as indicated in the arbitration petition relate to non-payment of wages and also the legality and validity of termination order dated 21.01.2021. Over and above these disputes, for the first time the respondent sought to give a new angle to the dispute by stating that the appellant has also violated the non-disclosure obligations under clause 19 of the appointment order," the bench said.

The High Court, however, had proceeded to note an arbitration agreement and therefore, appointed an advocate as the arbitrator.

"The issue relating to violation of the non-disclosure obligation under clause 19 is only an afterthought. This was evidently not the ground when the respondent issued the show cause notice on September 04, 2020, nor was it a part of the inquiry report. This is also not a part of the charge memo," the top court said.

It also noted the termination was not based on any such allegation as was evident from the termination order.

"Under these circumstances, we can conclude that there is no dispute about violation of nondisclosure obligations and Section 11(6) petition, to this extent is non-existent," the bench said.

It also pointed out the appellant approached the Authority under the PW Act much before the order of termination and the said authority would exercise jurisdiction under Section 15(2) of the PW Act to the exclusion of civil courts and these disputes were non-arbitrable.

"Equally, legality of the order of termination dated 21.01.2021 is within the jurisdiction of Industrial Tribunal under Section 2(A) of the ID Act and it is important to mention that the jurisdiction of the Industrial Court is also to the exclusion of the civil courts and is not arbitrable," the bench said.

It also pointed out that the remedies under these statutes were invoked much prior to the filing of petition under Section 11(6) by the respondent.

The bench thus allowed the civil appeal.

CASE TITLE: DUSHYANT JANBANDHU VS. M/S HYUNDAI AUTOEVER INDIA PVT. LTD