Employment Law Newsletter – Navigating Disciplinary Actions: A Guide for Private Sector Employers : February 2025

Disciplinary inquiries are a crucial aspect of workplace governance, ensuring that misconduct is addressed fairly and in accordance with legal and organizational policies. In India’s private sector, these inquiries must align with principles of natural justice and applicable employment laws. Here’s a legal perspective on navigating them effectively.

Understanding Disciplinary Inquiries

A disciplinary inquiry is a formal process initiated by an employer to investigate allegations of employee misconduct. It must be conducted in a fair and transparent manner to withstand legal scrutiny.

Legal Framework

Disciplinary inquiries in the private sector are not just governed by internal company policies but also by a well-defined framework of labour laws and judicial precedents. These legal standards ensure that the inquiry process is not only fair but also consistent with the broader principles of justice in India.

1)   Industrial Employment (Standing Orders) Act, 1946

The Industrial Employment (Standing Orders) Act, 1946 (“SO Act”) is a pivotal piece of legislation that establishes the framework for industrial relations in India, including the processes related to disciplinary inquiries. It primarily applies to industrial establishments employing 100 or more workers subject to the State-specific amendments. The SO Act mandates that employers create and publish standing orders (written rules) that govern various aspects of employment, including the terms and conditions of employment, misconduct, and the procedures for handling disciplinary actions.

Here is how the SO Act governs disciplinary inquiries:

a) Mandatory Standing Orders

• The Standing Orders set out by an employer must explicitly mention the types of misconduct that could lead to disciplinary action. These could include insubordination, theft, negligence, dishonesty, or other workplace-related offenses.
• The SO Act requires employers to establish clear rules regarding conduct and behaviour at work to prevent ambiguity in what constitutes an offence and the corresponding disciplinary measures.

b) Procedure for Disciplinary Inquiries

• According to the SO Act, employers are required to establish procedures for disciplinary inquiries. This procedure must be in line with the principles of natural justice, which includes giving employees the opportunity to present their defence.
• Rule-based inquiries. The SO Act requires that any misconduct investigation must follow specific rules laid out in the standing orders, such as issuing a show-cause notice and providing an opportunity for the employee to explain their actions before any penalty is imposed.

c) Employee Rights

• The SO Act ensures that the employee is given a fair hearing. This includes the right to:

1. Know the charges against them,
2. Have access to the evidence,

• Present their defence, and

1. Cross-examine witnesses, if applicable.

• The fairness and transparency of the inquiry process is therefore ensured through the legal framework of standing orders.

d) Penalties for Misconduct

• The SO Act allows employers to specify proportional penalties for misconduct, ranging from warnings to suspension or even dismissal. It emphasizes that any penalty should be fair and just based on the nature of the offence.
• Penalties for minor offences should not be excessive, and in such cases, alternative remedies like counselling or warnings may be imposed instead of severe measures like dismissal.

e) Applicability to Industrial Disputes:

1.  The Standing Orders have a critical role in industrial disputes and can be enforced under the ID Act (as defined below), which provides workers with additional rights to dispute disciplinary actions in certain cases.

2)   Industrial Disputes Act, 1947

The Industrial Disputes Act, 1947 (“ID Act”) is one of the key pieces of legislation that directly impacts the conduct of disciplinary inquiries in India, particularly in the context of industrial relations and employee discipline.

• Section 2(oo) of the IDA defines retrenchment, and related provisions guide what constitutes a legal dismissal, which, among other things, requires the employers to provide 1 months’ notice and retrenchment compensation calculated at 15 days of average pay for every completed year of service. Therefore, if an employer seeks to terminate an employee, it must be done following a set procedure that involves conducting a disciplinary inquiry if the termination is based on misconduct.
• Section 11-A provides a safeguard for employees against unfair dismissal. If an employer terminates an employee, and the employee challenges the termination in a Labour Court or Tribunal, the court has the authority to examine whether the dismissal or penalty was just and proper. If the process or penalty is found to be disproportionate or unjust, the court can order reinstatement or a lesser penalty.
• Section 33 of the ID Act places an emphasis on maintaining status quo during disputes, which can include disciplinary action. Employers must notify the appropriate authorities before implementing certain disciplinary measures, like suspensions or dismissals, during the pendency of industrial disputes.

3)   Principles of Proportionality and Fairness

The key principles of proportionality and fairness are enshrined not only in the ID Act but also in various judicial precedents. These principles ensure that the disciplinary actions taken against an employee are both appropriate and just in relation to the nature of the misconduct.

• Proportionality: The principle of proportionality mandates that the punishment imposed on an employee must correspond to the severity of the misconduct. For example, a minor infraction like lateness or failure to meet targets may warrant a warning or temporary suspension, while more serious misconduct like theft or violence at the workplace could justify termination. However, a termination for a first-time offense or a minor violation may be seen as excessive and disproportionate, and courts can intervene to reduce the penalty.
• Fairness: Labour laws stress that any disciplinary action must be carried out in a manner that respects the employee’s rights. Employers are required to follow due process, such as providing an opportunity to defend oneself, a clear explanation of the charges, and access to evidence. Failure to comply with these procedures can result in the action being overturned by courts or tribunals.

Role of Judicial Oversight in Disciplinary Inquiries

Courts play a significant role in overseeing disciplinary actions taken by employers, ensuring that they adhere to the principles of natural justice and proportionality.

• Reviewing the Fairness of the Inquiry: Courts will closely examine the process to ensure that the employee had a fair chance to defend themselves. Any failure in this regard could lead to the disciplinary action being quashed.
• Reviewing the Proportionality of the Penalty: Courts are also tasked with ensuring that the punishment is in line with the offense. While employers have the discretion to impose penalties, this discretion is not absolute and is subject to judicial review. A disproportionate penalty can be challenged and reduced by the courts.
• Judicial Intervention in Arbitrary Penalties: If an employer fails to follow due process, or if the penalty appears to be arbitrary, courts may either reinstate the employee or reduce the punishment to a more reasonable level.

Key Judicial Precedents on Disciplinary Inquiries

Indian courts have consistently emphasized the need for procedural fairness in disciplinary inquiries. Several important judicial precedents highlight the key aspects that employers must adhere to in conducting disciplinary inquiries:

1. K.K. Verma v. Union of India (1954)[1]: This case established that natural justice must prevail in any disciplinary inquiry. The principle of natural justice dictates that no one should be condemned unheard. The Court ruled that an employee must be given an opportunity to present a defence and to be made aware of the evidence against them.
2. Biecco Lawrie Ltd. v. State of West Bengal (1972)[2]: In this case, the Supreme Court stressed that procedural fairness in disciplinary inquiries must be followed, especially when dismissing an employee. The Court held that dismissal without following due process could be arbitrary and unfair, even if the misconduct was serious.
3. Delhi Transport Corporation v. D.T.C. Mazdoor Congress (1991)[3]: The Supreme Court emphasized the importance of proportionality in disciplinary penalties. The Court stated that an employer should not impose a punishment that is excessive or disproportionate to the gravity of the offense. If the penalty was found to be disproportionate to the offense committed, the Court could direct a reduction in the penalty.
4. Punjab National Bank v. K.K. Verma (1974)[4]: The Supreme Court ruled that mild misconduct does not justify harsh penalties like termination. The Court emphasized that an employer should explore all possibilities, such as warnings, counselling, or suspension, before resorting to dismissal. This judgment underlined the idea of proportionality, ensuring that disciplinary action is not punitive but corrective.
5. Management of Reserve Bank of India v. P.K. Ghosh (1963)[5]: The Court reiterated that any inquiry should be unbiased, free from external influence, and conducted by an impartial inquiry officer. It was emphasized that any perception of prejudgment could render the inquiry invalid and the subsequent punishment arbitrary.

Recent Developments

In a significant ruling, the Supreme Court of India, in Airports Authority of India v. Pradip Kumar Banerjee (2025)[6], reaffirmed that the burden of proof in disciplinary inquiries is based on the “preponderance of probabilities” rather than the higher standard of “beyond a reasonable doubt” required in criminal cases.

The case involved an employee of the Airports Authority of India (AAI) who was dismissed following a criminal conviction, which was later overturned. The Court ruled that while criminal convictions are not mandatory for disciplinary actions, employers can take action based on internal evidence if misconduct is established on the balance of probabilities. This judgment underscores the autonomy of employers in conducting disciplinary inquiries and clarifies that an acquittal in a criminal trial does not bar disciplinary action if sufficient evidence exists. This ruling is a key development in the context of labour law and reinforces the lower standard of proof applicable in disciplinary proceedings.

Common Pitfalls and Legal Risks

1)   Failure to Follow Due Process

Due process refers to the fair and transparent procedures that must be followed when taking disciplinary action against an employee. The principle of due process is grounded in the notion of natural justice, which is designed to ensure fairness in the decision-making process.

Legal Risk:

• If the employer fails to adhere to due process, courts may set aside the disciplinary action, including terminations or penalties, even if the employee is guilty of misconduct.
• Non-compliance with procedural fairness can invalidate disciplinary decisions. For instance, if an employer fails to: provide the employee with a show-cause notice outlining the specific charges; or allow the employee a reasonable opportunity to present a defence; or conduct the inquiry in an impartial and transparent manner, the employee may be able to challenge the action in court, and the court may order reinstatement or compensation.

Common Pitfalls:

• Lack of documentation. Employers may fail to maintain proper records of the inquiry process, such as minutes of hearings, notices issued, and responses from the employee.
• Failure to notify the employee. If the employee is not properly informed about the allegations or the process, the disciplinary action may be deemed unfair.

Legal Precedents:

• Indian courts have consistently ruled that an employer must not act in an arbitrary or biased manner and must comply with the procedure established in standing orders, policies, or employment contracts.
• A landmark case in this regard is Bihar State Milk Co-Operative Federation Ltd. v. Its Workman (1985)[7], where the Supreme Court ruled that non-compliance with procedural fairness, such as the denial of a fair hearing, can lead to an illegal dismissal.

2)    Bias or Prejudgment

An impartial inquiry officer is a key component of the disciplinary inquiry process. Bias or prejudgment refers to a situation where the person conducting the inquiry has preconceived opinions or a vested interest in the outcome of the case.

Legal Risk:

• Bias or prejudgment by the inquiry officer can render the entire inquiry process invalid. If the employee can demonstrate that the inquiry officer was not impartial—due to a personal interest, a relationship with the employee, or any other form of bias—the employer could face legal consequences.
• If the employee’s rights to a fair hearing are compromised by the inquiry officer’s bias, the disciplinary decision can be overturned by a court or tribunal.

Common Pitfalls:

• Conflict of interest. An inquiry officer who has personal or professional relationships with the accused employee may be viewed as biased.
• Preconceived opinions. An inquiry officer who forms an opinion on the employee’s guilt before reviewing all the evidence could inadvertently taint the process.

Legal Precedents:

• In Nashirwar v. State of Madhya Pradesh (1975)[8], the Supreme Court held that the decision of an inquiry officer who had prejudged the matter was not legally valid.
• Similarly, in B.M. Verma v. Union of India (1972)[9], the court ruled that any sign of bias or unfairness in the inquiry process could invalidate the entire disciplinary procedure.

3)  Excessive Punishment

The principle of proportionality dictates that the severity of the penalty imposed on an employee must be appropriate to the gravity of the offense. The employer must balance the nature of the misconduct with the penalty.

Legal Risk:

• If a penalty is deemed disproportionate to the offense, courts may intervene and set aside the penalty. For instance, dismissal for a minor offense or first-time misconduct may be considered excessive and unfair.
• Excessive punishment can lead to a claim of unfair dismissal, which may result in reinstatement, compensation, or monetary penalties.

Common Pitfalls:

• Overreaction to minor offenses. Imposing harsh penalties, such as termination for minor infractions like a first-time tardiness or unauthorized absence, can be seen as disproportionate.
• Inconsistent penalties. If an employer imposes a harsh penalty for an employee in one case but leniently penalizes another employee for similar misconduct, it can lead to claims of discrimination or arbitrariness.
• Lack of progressive discipline. Employers should generally apply a progressive discipline model, starting with warnings, escalating to suspension, and only considering termination in cases of repeated or serious misconduct. Skipping these steps can appear unjust.

Legal Precedents:

• In State Bank of India v. N. Sundara Money (1992)[10], the Supreme Court emphasized that disproportionate penalties (e.g., termination for a first-time offense) must be carefully scrutinized.
• In Management of Reserve Bank of India v. P.K. Routh (1968)[11], the court ruled that penalties must be commensurate with the severity of the misconduct. Excessive penalties can violate the principle of proportionality.

Best Practices to Avoid Pitfalls and Risks

To mitigate these common pitfalls and legal risks, employers should consider the following best practices:

• Develop a Clear, Documented Process:
• Ensure that the disciplinary process is well-documented, including notices, hearing procedures, and employee responses.
• Develop clear guidelines and procedures in the Standing Orders or Employee Handbook that align with legal requirements and make them accessible to employees.
• Ensure Impartiality:
• Appoint neutral inquiry officers with no stake in the outcome of the case.
• Consider appointing external members (like legal counsel or an independent HR professional) to ensure objectivity and fairness in the inquiry process.
• Ensure Proportionality in Penalties:
• Always ensure that the penalty matches the offense. Follow a progressive discipline policy and provide an opportunity for the employee to improve before resorting to termination.
• When deciding on a penalty, consider the employee’s length of service, previous conduct, and any mitigating circumstances.
• Review Judicial Precedents Regularly:
• Regularly review judicial precedents to ensure that the disciplinary procedures remain in line with legal expectations.
• Stay updated on any changes to labour laws and court rulings that might impact the conduct of disciplinary inquiries.

Checklist for Employers

Key Steps in Conducting a Disciplinary Inquiry

• Issuance of Show Cause Notice – The employer must provide written notice outlining the allegations and seeking an explanation.
• Response from the Employee – The accused employee should be given reasonable time to respond.
• Appointment of an Inquiry Officer – An independent officer should conduct the inquiry to ensure impartiality.
• Conducting the Inquiry – Evidence is presented, and witnesses may be examined in the presence of the employee.
• Submission of Inquiry Report – The officer submits findings based on evidence.
• Final Decision and Penalty, If Applicable – The employer takes an informed decision, ensuring proportionality in disciplinary measures.

Key Takeaways for Employers

• Compliance with Legal Standards: Employers must ensure that their disciplinary processes align with applicable labour laws and judicial precedents. Disciplinary actions must not only be based on clear evidence but must also be in compliance with the principles of fairness and proportionality.
• Impartiality and Objectivity: Inquiry officers must be impartial and must not be influenced by any external pressure or bias. Their decisions should be based strictly on the evidence at hand.
• Ensure Proportional Penalties: Penalties must match the severity of the misconduct. Employers must avoid imposing excessively harsh penalties for minor infractions, as this could result in legal challenges.
• Documentation and Transparency: Proper documentation of all procedures, from issuing show cause notices to final decisions, is essential to defending against potential challenges.

Best Practices

• Maintain comprehensive disciplinary policies
• Train HR and managers on conducting inquiries.
• Ensure consistency in disciplinary decisions.
• Seek legal counsel for complex cases to mitigate legal risks.

Final Thoughts…

Disciplinary inquiries, when conducted fairly, uphold workplace integrity while protecting the rights of both employers and employees. A legally sound approach minimizes disputes and enhances organizational credibility. Are you compliant?

To know more, write to us at employmentlaw@legalogic.com