M J Antony: The guilty must compensate

OUT OF COURT

Can the employer sue the employee to recover the loss he caused?

Employees who are charged with dereliction of duty or gross negligence leading to losses to his employer are usually punished with dismissal. In rare cases, they are asked during the disciplinary proceeding to recoup the losses they had caused to the establishment. But can the employer sue the employee later for full recovery of the loss caused by the employee? This was the issue in the recent judgement of the Supreme Court in Punjab State Civil Supplies Corporation vs Sikander Singh.

The issue is important not only for government undertakings but also for private concerns. One way to tackle corruption is to mulct the perpetrators of illegalities to compensate the undertaking which engaged them. In another recent judgement of the Supreme Court, M C Mehta vs Union of India, it has proposed such action against the officials of the Municipal Corporation of Delhi who enabled thousands of violations of the master plan, leading to rampant commercialisation of residential areas in the capital. The Chief Justice's judgement says it is contemplating "appropriate directions for action against officers responsible for the misuse and for payment of compensation by them and by the violators" of the civic regulations.

In the Punjab Civil Supplies case, the audit report found that 4,513 bags of wheat were missing. The inspector and the supervisor concerned were dismissed. The appellate authority directed the reinstatement of the inspector subject to his depositing 400 bags of wheat. He complied with the order and got back his job. But the supervisor challenged his dismissal in the high court, which was dismissed. The corporation pursued him and sued him for return of the missing wheat bags. The civil judge ordered so.

The judge stated that the corporation had suffered losses on account of misappropriation and unauthorised use of stocks for his own interest and benefit. Therefore, he was liable to make good the shortage suffered by the corporation. He appealed to the Punjab and Haryana High Court, and it absolved him of the liability after analysing the facts and circumstances. The corporation did not leave it at that. It appealed to the Supreme Court, asserting its right to get compensation from the employee, who was negligent.

The Supreme Court dismissed the corporation's appeal observing, "We fail to understand as to how under the common law, he could be proceeded against by way of a civil suit for recovery of money. A civil suit for recovery might have been maintainable only if he was found to have misappropriated the goods. Admittedly he has not."

Mere negligence in performing the duties of an employee would not invite such serious consequences. Misconduct which calls for such action must be accompanied by "ill motive". Acts of negligence, errors of judgement or innocent mistakes do not constitute such misconduct.

"Negligence in the performance of a duty under a contract of employment may give rise to disciplinary proceeding, but in a case of this nature, we are of the opinion that the same would not give rise to a cause of action for recovery of money for the goods lost as in the disciplinary proceeding itself, recovery of money from the delinquent employee can be directed by way of punishment," the judgement explained. For instance, in a 1997 judgement, the Supreme Court approved of the order to recover the losses caused by the employee from him in Depot Manager vs N Ramulu.

The principle applies to private establishments and companies too. In the case, Supreme Bank Ltd vs P A Tendolkar (1973), the court was concerned with an instance where a director was held to be not merely aware of but guilty of commission of fraud in the conduct of the business of the company. No specific act of dishonesty was proved against him personally. In that case, all the directors were found to have committed fraud. The court took recourse to the provision in the Companies Act wherein special provisions for assessing damages against delinquent directors have been laid down.

The court distinguished such cases from "torts", or breach of duty leading to loss or damage. In MS Grewal vs Deep Chand (2001), the Supreme Court had held that the school was vicariously responsible for the negligence of the teachers leading to drowning of students. But the question of negligence in departmental proceedings should be distinguished from a suit of recovery of money.

The judiciary appears to be closing in on officials who cause losses to the public, as in the M C Mehta case where residential premises have been converted to commercial areas with the connivance of officials. One cannot but recall how close to punishment former minister Satish Sharma came a few years ago when he allotted petrol pumps to his favourites. Similarly, in the housing allotment scandal, former minister Sheila Kaul also escaped liability to a great extent. However, the day may not be far off when the current judicial activism envelopes such instances also.