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Analaysing Important Legal Issues in VRS

Info: 2930 words (12 pages) Essay
Published: 7th Aug 2019

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Jurisdiction / Tag(s): Indian law

Corporate is a socio- economic identity surrounded by its environment. It operates under the influences of numerous external factors such as social, political, cultural, legal, economical, etc. Further, various passive as well as active factors of production, play a vital role in developing a conducive internal environment for the quantity and quality of finished products, services or both. For efficient functioning, firms usually design and implement effective strategic tools. The passive factors are controlled and co-ordinate by active factor of production i.e. Human Resources. But the management of the human resources is itself a complex issue. For the purpose, the firms usually develop their own rules and regulations within the framework of legal provisions. Accordingly, all the aspects of Human Resource management (Procurement to superannuation) are framed within legal framework. However any change in environment requires immediate modification to establish equilibrium. The New Economic Policy, 1991 in India introduced various changes in the Indian economy i.e. Liberalization, Privatization and Globalization which further influenced the numerous facets of a firm as well as its environment. The NEP 1991, on one hand, provided ample opportunities for the corporate world, but on the other hand, the firms felt the heat of stiff competition from MNCs. Consequently, redundancy of manpower emerged as a major issue, due to implementation of technology up gradation, cost competitiveness, restructuring, outsourcing, closure of sick units etc. in large number of industries. Due to global competition and fast development in technology, many companies become bankrupt, diverted their holdings, eliminated unprofitable product line, (Das and Das 2009). In order to meet the challenge of this cut-throat competition, the corporate world adopted various measures to right size its excessive manpower, including Voluntary Retirement Scheme. As involuntary termination entrails heavy monetary costs and lengthy legal battles in addition to bringing a lots of negative publicity as well as low employee morale, organizations take great care in designing their VRS (Ratnam, 2001). Existence of protectionist labor laws, further favored the accepted of VRS in the corporate world. The mantra of 1/4x2x4 i.e, reducing workforce to one–forth, pay them double the wages and expects four times increase in output (Ratnam, 2001) was implemented. Guha (1996) rightly observed that with a view to achieve the desired cost effectiveness, downsizing of manpower has to be taken up as an indispensable exercise.

Definition of VRS

“The word “retirement” implies leaving or withdrawing from employment. In the context of industrial relations, it implies termination of employer-employee relationship at the conclusion of pre-agreed terms/conditions or on attaining age of superannuation. Thus, voluntary retirement relates to a situation when a worker, for one reason or other, resigns from his job and thereby terminates the employer-employee relationship prior to the maturity of terms and conditions of employment. It is a premature termination of employment” ( Dey and Ray, 2003).

According to Narula (2004) “VRS signifies the termination of employer-employee relationship voluntarily by worker in exchange of retirement benefits”.

“‘Voluntary’ means without compulsion – the willingly. Therefore, Voluntary Retirement is an act on the part of the employee to give up employment willingly and without compulsion from the employer. It is a unilateral act on the part of an employee to cease the contract of employment with the employer (Kumar and Kumar, 2003).

So, VRS which is also known as Golden Handshake, is an independent decision of employee to end his employment based on some decided agreement or contract, so as to terminate the legal relationship of employer – employee.

VRS, Superannuation, Resignation, Layoff and Retrenchment

Various terms such as Superannuation, Resignation, Layoff and Retrenchment are similar in one way to VRS, as all of them terminate the judicial relationship between the employer and employee, but virtually different from VRS. As Resignation is intimation in writing sent to the competent authority by the incumbent of a post, of his intention or proposal to resign the office/post either immediately or from a future specified date. A resignation has to be clear and unconditional (Muthuswamy and Brinda, 2006).Whereas Lay-off [Sec.2(kkk), Industrial Dispute Act,1947] means the failure, refusal or inability of an employer to give employment to a workman (a) whose name is borne on the muster-rolls of his industrial establishment, and (b) who has not been retrenched. The failure, refusal, or inability to give employment may be due to-

Shortage of coal, power or raw materials, or

The accumulation of stocks, or

The breakdown of machinery, or

Natural calamity or for any other connected reasons (Kapoor,2008).

Superannuation [New Sec.2(r) as substituted by the Amendment Act of 1984]. ‘Superannuation’, in relation to an employee, means the attainment by the employee of such age as is fixed in the contact or conditions of service as the age on the attainment of which the employee shall vacate the employment (Kapoor,2008).

“ Retrenchment (Industrial Dispute Act,1947) means the termination by the employer of the service of a workman for any reason whatsoever otherwise then as punishment inflicted by way of disciplinary action, but does not include-

voluntary retirement of the workmen; or

Retirement of the workmen on reaching the age of superannuation if the contract of employment between the employer and workman concerned contains a stipulation in that behalf”.

Important Legal Issues in VRS

Voluntary Retirement Scheme is considered as a most friendly strategy and win-win approach to right size the manpower in firms. Being not governed by the statutory rules (Tribal Co-operative Marketing Development Federation of India v. Siddhartha Kumar, 149 (2008) DLT 723 Del HC (DB) VRS has acquired much preference in corporate world. The word “Voluntary Retirement” received legislative recognition in 1953, when section 2(oo) was engrafted in the Industrial Disputes Act, 1947 (Kumar and Kumar, 2003). From 1953 till now many VRS issues were raise by the employer or employees on legal grounds. Numerous directions have been issued by various courts on the important issues such as existence of any judicial relationship between employer and employees after opting VRS, VRS contractual in nature, right of an employee to claim increment on salary after opting VRS, role of employer and competent authority in Voluntary Retirement Schemes, issues regarding special schemes, disciplinary enquiry and VRS, withdrawal of VRS option, unfair labour practice and VRS, notice period and taxation issues regarding VRS etc.

The decision of opting VR by the employee should be based on his will. No management or employer can force them to do so. According to Allahabad High Court, the Voluntary Retirement is an act of an employee and if it is proved and established that the employee concerned had chosen to give up office of employment of his own accord and free will, the cessation of his employment and the breaking up the relationship of master and servant is immediate without calling for an approval of the Suo moto action of the master and servant unless, of course, the service conditions required anything to the contrary ( Siri Krishna v. Prescribed Authority, Kanpur, 1995 (1) LLJ1060 (ALL HC)).

According to H.E.C Voluntary Retd. Employees Welfare Society v. Heavy Engineering Corpn. Ltd. 2006 LLR 370 (SC), with the receipt of VRS benefits by an opted employee, the judicial relationship between employer and employee terminates and they are bound by their own act and the parties would be bound by the terms of the contract of the Voluntary Retirement (M/s. Muir Mills, Kanpur v. Presiding Officer, Labour Court V th, Kanpur, 2008 LLR 649(All HC) ).

Further, VRS is contractual in nature, the application filed by employees is considered as offer and right to accept or reject it, is vested with their respective employer. The relevance of provisions of the Indian Contract Act, 1872 in administration of VRS are also declared by Delhi High court (Tribal Co-operative Marketing Development Federation of India v. Siddhartha Kumar, 149 (2008) DLT 723 Del HC (DB).

In one case, Supreme Court held that floating VRS does not amount to an offer in itself but an invitation to offer. Therefore, under section 2(a) of the Indian Contract Act, the scheme cannot be said an offer, which on acceptance would fructify into a concluded contact (para 65) (clerk , 2004).

To enhance their benefits, VRS opted employees usually challenged the VR scheme in different ways. To regulate these issues High courts and Supreme Court has given different decisions. The Supreme Court has held in the case of A.K. Bindal v. Union of India, 2003 (98) FLR 1 (SC) that “after the amount is paid and the employee ceases to be under the employment of the company or the undertaking, he leaves with all his rights and there is no questions of again agitating for any kind of his past rights, with his erstwhile employer including making any claim with regard to enhancement of pay scale for an earlier period”.

“It has been also held that when all the employees have opted for voluntary retirement and on acceptance of their option received the benefits accruing out of the scheme, they are estopped from challenging the validity of the scheme in the absence of specific denial by the employees having received the benefits of Voluntary Retirement Scheme” (Hindustan Lever Ltd. V. Presiding Officer, IT No.- V, Meerut, 2004 LLR 907 (All HC) ).

As per clause 4(2) of the company’s Voluntary Retirement Scheme the ex-gratia payment was on the basis of basic pay plus D.A. at the time of retirement

To be effective, VRS should be accepted in writing by the competent authority, and the employee had the right to withdraw his option for voluntary retirement before the same was accepted (Punjab National Bank v. Virendra Kumar Goel, 2004 LLR 267 : 2004 (100) FLR 631 (SC) ).

In scheme for Voluntary Retirement framed by the nationalized banks as per par a 10.6 of scheme-“The competent authority shall have absolute direction either to accept or reject the request of an employee seeking voluntary retirement under the scheme depending upon the requirement of the bank. The reasons for rejection of request of an employee seeking voluntary retirement shall be recorded in writing by the competent authority. Acceptance or otherwise of the request of an employee seeking voluntary retirement will be communicated to him in writing”.

In case of Government servants, FR 56 (k). (1) Any Government servant may by giving notice of not less than three months in writing to the appropriate authority retire from service after he has attained the qualifying age or criteria. Further, under sub-class (1-A) A government servant may make a request in writing to the appropriate authority to accept notice of less than three months. The appropriate authority may relax the requirement of notice of three months on the conditions that government servant shall not apply for commutation of a part of his pension before the expiry of period of notice of three months. Under rule 38 (1) Invalid pension may be granted if a government servant retires from the service on the account of any bodily or mental infirmity which permanently incapacitates him for the service. As per the guidelines under Rule 48-A of the CCS (Pension) rules, if a government servant retires under the scheme of voluntary retirement ( Rule 48-A) while he is on leave not due, without returning to duty, the retirement shall take effect from the date of commencement of the leave not due and the leave salary paid in respect of such leave not due shall be recovered as provided in Rule 31 of the CCS (leave) rule, 1972 (Muthuswamy and Brinda, 2006).

Any organization may develop and implement special VRS. In the case of Central Govt. employees also a liberal VR Scheme was introduced on the suggestion of Expenditure Reform Commission (ERC) for the employees declared surplus (Muthuswamy and Brinda, 2006). Each special VRS has its own feature and should confine to the rules regarding to VRS. “If an employee seeks voluntary retirement under such special scheme, he can seek voluntary retirement strictly in terms of such special scheme and not de hors the special scheme, because, as already pointed out supra, no employee, after joining a public service, can claim voluntary retirement as a matter of right or course unless the rules governing terms and conditions of his service providing for such retirement” ( Repakula Vidya Sagar v. State Bank Hyderabad Head Office, 2002 (3) LLN 143 (AP HC) (DB) ).

VRS application can be accepted by the competent authorities, if no disciplinary proceeding or prosecution or domestic enquiry is pending against an employee. Competent authority was within his powers under Rules 19 and 20 to decline the request of the officer for voluntary retirement till disciplinary proceedings are completed (S.K.Bangia v. State Bank of India, 1996 I LLJ 95 (Del HC)). According to FR 56 (k). (1) (c) it shall be open to the appropriate authority to withhold permission to a Government servant under suspension who seeks to retire under this clause.

In Punjab and Sind Bank and others vs Mohinder Pal Singh and others (2004 2 SCC 193), the Supreme Court held that unless the compensation amount is utilized by the employee, nearly unilateral deposit of a part of benefit under the scheme into the bank account of the employee after the withdrawal application being made by the employee cannot be construed as an acceptance of VRS ( Clerk,2004).

As per Karnataka high court decision in one case, Management do not have right to reject the VR application of an employee on the ground of financial stringency, non-surplus staff for requirement of service of employee.

As per Supreme Court, an employee has a right to withdraw notice of voluntary retirement before due date ( Srivastava J.N. v. Unoin of India,1999 ILLJ 546 (SC)).

In various cases, it has been observed that, the VRS opted employees after utilization of VR benefits or because of being unemployed sue the firms for using unfair labour practices to pursue them to opt for VRS.In a similar case, according to Bombay High Court, An employee having voluntarily applied for VRS and having enjoyed the benefits of it without demur is not entitled to any relief on the pretext of unfair labor practice on the part of the employer (Balasaheb Rangnath Navale v. M/s. Bharat Forge Ltd., 2008 (117) FLR 589 (Bom HC) ).

The allegations of undue and excessive exercised pressure upon an employee to write and sign an application for voluntary premature retirement as levied by a workman will not be tenable when not supported with evidence about undue influence or excessive pressure so much so that even the name of the officer extending such pressure has not been given (Tata Iron and Steel Co. Ltd., Singhbhum (East) Jamshedpur v. Gyanendra Sahay, 2005 LLR 438(Jhar HC)).

“The Government, in Income Tax Act also extended their helping hand by inserting sub- section C to section 10 (10) which was introduced vide Finance Act, 2003 so as to provide exemption from tax even if the amount received on voluntary retirement is paid in installment to make Voluntary Retirement more attractive. The object was that the terminal benefits should not be subjected to Income Tax assessment in respect of that financial year to the extent that such amount does not exceed Rs.5.00 lacs, provided that the scheme governing the payment of such amounts are framed in accordance with such guidelines in view of economic viability, as may be prescribed in rule 2BA of the Income Tax Act Rules which was inserted by the I-T (Sixteenth Amendment) Rules, 1992. If the scheme is not approved prior to the date of voluntary retirement, no relief would be available. Subsequent approval will not entitle a retired employee to claim exemption. Further the said exemption is applicable to employees who have completed 10years service or attained the age of 40. The purpose of the scheme should be overall reduction in the existing strength of employees and any vacancy caused by voluntary retirement is not to be filled up” (Kumar and Kumar, 2003).

In one case, the Jharkhand High Court has clarified that an employee, who has rendered service in a casual status from 1973 to1989, will be entitled to the computation of VRS benefits for the service rendered by him in the casual- employee capacity (Lalji Bhuiya v. Bharat Cooking Gas, 2003 (2) LLN 702 (Jhar HC) ).


With the increasing pace of VRS implementation in corporate world, the figure of legal issues in its relation has also raised many folds. The various judgments given by different courts of the country not only resolve the various VRS issues but also help to make VRS more pronounced, objective and clear for employees as well as for employers.

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