Madras High Court Modifies VRS Directions in Hindustan Photo Films Case

Background of the Dispute

The litigation revolves around the Voluntary Retirement Scheme (VRS) introduced for the employees of Hindustan Photo Films Manufacturing Company Limited (HPF), a Public Sector Undertaking that had long been in financial distress.

HPF had already been declared a Sick Industrial Company. The Board for Industrial and Financial Reconstruction (BIFR) recommended its winding up by order dated 30.01.2003, which was subsequently affirmed by the Appellate Authority for Industrial and Financial Reconstruction (AAIFR) through order dated **07.06.2005`.

In an effort to resolve long-pending employment and financial issues, the Ministry of Heavy Industries approved a VRS package for HPF employees on 20.03.2014. Based on this approval, HPF issued a circular dated 21.03.2014 implementing the VRS offer.

The matter ultimately reached the Madras High Court, where a learned Single Judge passed a common order on 17.03.2017 in a batch of writ petitions, including W.P.No.18566, 18608, 18609, 18610, 18788 and 18789 of 2015. Both HPF and the Government of India challenged parts of that order before the Division Bench by way of writ appeals.

Parties and Appeals Before the Division Bench

Who Filed the Appeals?

  1. Hindustan Photo Films Manufacturing Company Limited

    • Filed Writ Appeal No.616 of 2017.
    • Targeted only specific directions found in paragraph 34(v) and (vi) of the Single Judge’s order.
    • These directions mandated:
      • Implementation of the severance/VRS package within one month; and
      • Vacation and handing over of staff quarters by employees within one month of receipt of monetary benefits.

  2. Secretary, Government of India, Department of Heavy Industries and Public Enterprises

    • Filed Writ Appeal Nos.753 to 758 of 2017.
    • Challenged the entire common order of the learned Single Judge dated 17.03.2017 in the above writ petitions.

The employees’ union, representing HPF workmen, had originally questioned the Government’s letter dated 20.03.2014 and HPF’s circular dated 21.03.2014, asserting that the benefits provided under the sanctioned VRS were inadequate and seeking enhanced terms.

Core Issues Before the High Court

The Division Bench was essentially called upon to examine:

  • Whether the Single Judge was justified in:
    • Upholding the validity of the Government proceedings dated 20.03.2014 and HPF circular dated 21.03.2014, and
    • Directing prompt implementation of the VRS/severance package;
  • Whether employees could be compelled to vacate staff quarters within a specified time frame after receiving VRS benefits;
  • Whether income tax/TDS could lawfully be deducted from the VRS/severance amounts;
  • Whether the Government’s subsequent restrictive stand on VRS coverage (only for some employees) could be sustained in light of the earlier Cabinet-level policy;
  • How the priority of claims over HPF’s assets would be structured, especially between workmen, the Central Government, and other creditors in liquidation proceedings.

Employees’ Demands and Single Judge’s Findings

Reliefs Sought by Employees’ Union

In W.P.No.18566 of 2015, the employees’ union had challenged the Central Government letter dated 20.03.2014 and HPF circular dated 21.03.2014, demanding, inter alia:

  • 72 months’ salary calculated on the basis of 2007 pay scales for each employee;
  • Arrears of salary on 2007 pay scales;
  • No deductions towards:
    • Recoverable monthly advances;
    • Special Performance Allowance; and
    • Adjustable Advances paid earlier;
  • Permission for employees to continue residing in HPF staff quarters at Udagamandalam up to 01.05.2016 at the same rent as before the VRS.

Decision of the Learned Single Judge

The Single Judge, after considering the issues, held as follows:

  • The challenge to the Government proceedings dated 20.03.2014 and HPF circular dated 21.03.2014 was rejected.
  • Nevertheless, directions were issued to:
    • Implement the severance/VRS package within one month from receipt of the order;
    • Require employees to vacate and hand over possession of the quarters within one month of receiving the severance package;
  • It was further held that no income tax is recoverable from the severance package.