M J Antony: Fragile expectations

OUT FO COURT

The assumption that whenever an undertaking is taken over, the employees' services should also be continued is not legally sound.

One of the vague legal concepts that has recently come into prominence in the judgements of the courts is "legitimate expectation". It is not a legal right. It is an expectation of a benefit, relief or remedy that may ordinarily flow from a promise or established practice. Usually, it is raised against the government or its agencies. An employee who had been working as a temporary hand in an establishment for a long time expects that he would be confirmed one day. An industrial unit which invested huge amounts trusting the promise of the government of tax incentives hopes that the promise would be kept. A contractor who bid for a project presumes that the terms of the tender would not be changed. These are legitimate expectations, though they may not be based on statutory or contractual obligations. How far does the court recognise this principle?

The judiciary is still evolving the theory and several judgements have tried to demarcate the areas in which this concept could be applied. The latest discussion on this issue came last week in the Supreme Court judgement in Ram Pravesh vs State of Bihar. The case related to the demand of employees of an electricity unit to be absorbed in the Bihar Electricity Board. The unit was earlier carved out from the board for better distribution of electricity to rural areas. But the unit became bankrupt soon, and its function had to be taken over by the board, which was itself not in sound financial health. Therefore, it declined to take the employees, despite the recommendation of a committee and earlier promise of the state government. Therefore, the employees moved the high court which dismissed their petition. The Supreme Court also ruled that they had no claim to be absorbed in the board.

One of their main arguments was based on "legitimate expectation". They argued that whenever an undertaking, company or institution was taken over by any statutory body or corporation, the services of the employees of such undertaking are also normally taken over. When an undertaking is purchased, in the absence of an intention to the contrary, all the assets and liabilities, as also the services of all employees are transferred to the purchaser and, therefore, the board could not refuse to absorb them.

The Supreme Court elaborately discussed the concept in the context of this case. It said: "It is a concept fashioned by courts, for judicial review of administrative action. It is procedural in character based on the requirement of a higher degree of fairness in administrative action, as a consequence of the promise made, or practice established."

A person can be said to have a legitimate expectation of a particular treatment if any representation or promise is made by an authority, either expressly or impliedly or if the regular and consistent past practice of the authority gives room for such expectation in the normal course.

The Supreme Court pointed out that the efficacy of this doctrine is "rather weak". A legitimate expectation, even when made out, does not always entitle the person to relief from the court. "Public interest, change in policy, conduct of the expectant or any other valid or bona fide reason given by the decision-maker may be sufficient to negative the claim of legitimate expectation," the judgement explained.

In one of the early judgements, Union of India vs Hindustan Development Corporation (1993), the Supreme Court remarked that "however earnest and sincere the wish, a desire or a hope may be and however confidently one may look to them to be fulfilled, they by themselves cannot amount to an assertable expectation and a mere disappointment does not attract legal consequences."

In Punjab Communications Ltd vs Union of India (1999), the Supreme Court remarked that "the judgement whether public interest overrides the substantive legitimate expectation of individuals will be for the decision-maker who has made the change in the policy." The doctrine can be invoked, according to the recent Constitution bench decision in State of Karnataka vs Umadevi, in two circumstances: one, when the person had been permitted to enjoy a benefit and he had been permitted to continue it until he had been given notice of withdrawal on some rational grounds; second, when he had been given an assurance that the benefits would not be withdrawn without giving him an opportunity to oppose it.

The decision in Bihar's electricity unit's employees case and the precedents make one thing clear. There is no ground for assuming that whenever an undertaking is taken over, transferred or purchased, the transferee or purchaser should continue the services of the employees of the former owner of the undertaking. In the absence of a clear agreement, the expectations might be belied.