The Bombay High Court, in the case of Surendra vs. Agrofab Machineries Pvt. Ltd, Writ Petition No. 5656 of 2021, decided on 15.09.2025, held that employees cannot be forced to deposit retrenchment compensation as a precondition for challenging their termination.
FACTS
The present writ petitions arose out of retrenchment of employees of the Agrofab Machineries Pvt. Ltd. (hereinafter referred to as “the Respondent’). Mr. Surendra Dasariya (hereinafter referred to as “the Petitioner”) was working as an employee with the Respondent establishment, and his services came to be terminated by way of retrenchment on 30 December, 2014. Aggrieved by the retrenchment, the Petitioner challenged the same by filing Complaint (ULP) No. 81 of 2015 and Complaint (ULP) No. 85 of 2015 before the Labour Court under the Maharashtra Recognition of Trade Unions and Prevention of Unfair Labour Practices Act, 1971.
During the pendency of these complaints, the Respondent filed applications before the Labour Court seeking directions against the employees to deposit the amount of retrenchment compensation that had been paid to them at the time of retrenchment. The Labour Court, by its order dated 21 August, 2018, rejected these applications and refused to direct the employees to deposit the retrenchment compensation.
Challenging this refusal, the Respondent filed revision applications before the Industrial Court. These revision applications were allowed by the Industrial Court vide judgments and orders dated 13 December, 2018 and 23 January, 2020. The Industrial Court directed the employees to deposit the amount of retrenchment compensation with the Labour Court within the stipulated period. As the employees failed to comply with this direction, the employer filed further applications seeking dismissal of the complaints. Although these applications were initially rejected by the Labour Court on 8 May, 2019, the Industrial Court, in revision, allowed the Respondent’s challenge and dismissed the complaints on 23 January, 2020 solely on the ground of non-compliance with the deposit order.
Aggrieved by these orders of the Industrial Court, the Petitioner approached the High Court by filing the present writ petition.
ISSUES BEFORE THE COURT
- Whether the Industrial Court was justified in directing the employees to deposit the amount of retrenchment compensation as a condition for challenging the retrenchment.
- Whether non-deposit of retrenchment compensation could validly result in dismissal of the employees’ complaints challenging retrenchment.
- Whether the principles laid down by the Supreme Court in cases relating to voluntary retirement and settlement could be applied to cases of retrenchment under Section 25F of the Industrial Disputes Act, 1947.
CONTENTIONS OF THE PARTIES
The primary contention of the Petitioner was based on Section 25F of the Industrial Disputes Act, 1947. It was argued that payment of retrenchment compensation is a condition precedent to a valid retrenchment. Therefore, once retrenchment compensation is paid, the employee acquires a statutory right over the amount.
Even if the employees ultimately fail in their challenge to retrenchment, they are legally entitled to retain the retrenchment compensation. Hence, the Industrial Court erred in directing deposit of the said amount as a condition for contesting the retrenchment.
It was further argued that directing deposit of retrenchment compensation defeats the very object of Section 25F, which is to provide immediate financial support to a retrenched employee for subsistence. Such a direction could compel financially weak employees to abandon their legitimate challenge due to inability to deposit the amount.
On the other hand, the Respondent contended that retrenchment severs the master-servant relationship. If the employee challenges the retrenchment and seeks continuation of the relationship, equity demands that the retrenchment compensation paid should be secured.
The Respondent relied on Ramesh Chandra Sankla and others v. Vikram Cement and others (2008) 14 SCC 58, to argue that an employee cannot approbate and reprobate simultaneously. According to the Respondent, accepting retrenchment compensation and at the same time challenging retrenchment amounts to such conduct.
Further reliance was placed on Man Singh v. Maruti Suzuki India Ltd. (2011) 14 SCC 662, and the judgment of the Bombay High Court in Motiram S/o Kautikrao Tekale v. State of Maharashtra (2017) 3 MhLJ 853. On the basis of these judgments, it was submitted that the Industrial Court had rightly balanced equities by directing deposit of the amount.
DECISION AND FINDINGS
The Hon’ble Bombay High Court allowed the writ petitions. It quashed and set aside the orders of the Industrial Court dated 13 December, 2018 and 23 January, 2020 directing deposit of retrenchment compensation. Consequently, the orders dismissing the complaints on the ground of non-compliance were also set aside. Complaint (ULP) Nos. 81 of 2015 and 85 of 2015 were restored to file, and parties were directed to appear before the Labour Court on the specified date.
The High Court examined the difference between retrenchment and voluntary retirement. It noted that Supreme Court decisions in Ramesh Chandra Sankla and others v. Vikram Cement and others (2008) 14 SCC 58, were made in the context of voluntary retirement schemes. Such schemes are characterized by voluntary retirement being initiated by the employee through an offer, which the employer may or may not accept. Once accepted, the master-servant relationship terminates, and the employee is granted benefits under the scheme. If the employee subsequently contests the voluntary retirement, it is only fair that a deposit of the amount received be insisted upon.
Nevertheless, the Court determined that this explanation should not be extended to retrenchment cases. Retrenchment is not something an employee can ask for, it is an action taken by the employer. The payment of retrenchment compensation under Section 25F is a statutory requirement and a condition precedent to the execution of retrenchment. The right to receive and keep retrenchment compensation is directly derived from the law.
The court pointed out that if the employees challenge to the retrenchment is unsuccessful, the employee is still entitled to the retrenchment compensation. Hence, a directive for deposit of such compensation has no legal effect and is unfair. While considering Motiram S/o Kautikrao Tekale v. State of Maharashtra (2017) 3 MhLJ 853. the Court observed that the decision in that case was with respect to closure compensation following a settlement, where employees received amounts way beyond the statutory closure compensation, including ex, gratia payments. In such a situation, the requirement of deposit before filing a challenge to the settlement was proper. The present case, however, is not a settlement but only statutory retrenchment compensation.
The Court found, based on this line of argument, that the Industrial Court had made a grave error in its instruction that the retrenchment compensation be deposited and in its dismissal of the complaints due to non, compliance with that direction.
AMLEGALS REMARKS
This judgment stands out as it effectively lays down the distinct legal lines between retrenchment and voluntary retirement as well as settlements, which are frequently indistinguishable in labour adjudication. The Court, by reiterating that retrenchment compensation is a right granted by law and is unconditional, has gone a step further in securing the protective framework of labour law. At the level of big picture, the verdict mirrors the judiciary’s empathy towards the economic hardship of the workers who have been retrenched and reminds the courts not to set up procedural hurdles that will in effect block the way to justice. As such, the Court’s decision is in line with the welfare, oriented framework of the Industrial Disputes Act, 1947, while it also assures that fairness is not allowed to supersede legal rights.
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