Introduction:

In a significant ruling on January 23, 2025, the Madras High Court addressed the validity of a circular issued by the Tamil Nadu State Marketing Corporation (TASMAC), which mandated collective disciplinary action against all employees, including the supervisor, of a shop when an individual employee was found to be overpricing customers. The petition was filed by the Tamil Nadu Tasmac Virpanaiyaalargal Nala Sangam, challenging the circular, arguing that it introduced a new disciplinary rule without proper legal standing. The Sangam contended that the circular violated the principles of industrial law and collective liability under Indian law. The case, titled State Secretary v. Additional Chief Secretary and Others (W.P.No.33765 of 2024), was heard by Justice Bharatha Chakravarthy, who ultimately read down the circular and limited its applicability to cases where prima facie evidence of collective misconduct existed.

Arguments of the Petitioners:

The petitioners, represented by the Tamil Nadu Tasmac Virpanaiyaalargal Nala Sangam, argued that the new circular issued by TASMAC violated established legal principles. According to the petitioners, the previous circular held only the individual employee responsible for misconduct such as overpricing. The new circular, however, deviated from this approach by suggesting collective liability for all employees of the shop, including the supervisor, even when there was no prima facie evidence of their involvement in the misconduct. The Sangam contended that this policy change introduced a new rule of discipline without proper consultation or notice, violating the provisions of the Industrial Disputes Act. They argued that under Entry 9 of Schedule IV of the Act, such a change in the disciplinary approach required prior notice under Section 9A of the Act. The Sangam also raised concerns regarding the concept of vicarious or joint liability, which they argued was not recognized under Indian law. They further stated that punishing employees collectively without individual proof of misconduct was fundamentally erroneous and unjust.

Arguments of the Respondents:

The respondents, represented by the Additional Advocate General (AAG) of Tamil Nadu, argued that the circular did not constitute a new rule but was rather an operational procedure aimed at addressing instances of collusion among employees in TASMAC shops. The AAG contended that the circular was a logical response to the widespread instances of overpricing and collusion among employees for monetary gain. They emphasized that collective disciplinary action was necessary when there was sufficient material evidence indicating that the employees had participated in the misconduct together. The AAG further challenged the petitioners’ claims about Section 9A of the Industrial Disputes Act, arguing that the circular did not alter any existing rules or create new disciplinary procedures, and thus did not require prior notice under the Act. Regarding the petitioners’ concerns about vicarious liability, the AAG stated that collective liability could be imposed when there was prima facie evidence of shared misconduct, which was in line with the principle of collective responsibility.

The AAG also argued that the Sangam had no locus standi in the case, as the disciplinary inquiry was an individual matter. He asserted that the union could not intervene in such cases unless there was a direct collective dispute involving all employees. Moreover, the AAG highlighted that the government was in the process of digitizing the TASMAC operations, which would create a foolproof system to prevent tampering with prices and other forms of misconduct. He assured the court that by March 2025, all TASMAC shops would be equipped with a computerized billing system that would eliminate opportunities for overpricing or collusion.

Court’s Judgment:

Justice Bharatha Chakravarthy, in his judgment, acknowledged the concerns raised by both parties but ultimately ruled that the circular issued by TASMAC could not be enforced in its entirety. The court emphasized that while collective disciplinary action could be taken against employees, it could only be done based on prima facie evidence of collusion and shared misconduct. The court found that the circular, as it stood, could potentially result in collective punishment without proper evidence, which was not by the principles of justice and fairness.

The court observed that collective action could be justified in cases where there was clear material evidence indicating that all employees had participated in the misconduct, but such evidence must be established before disciplinary action could be taken. Therefore, the court ruled that the circular could not be used to impose blanket liability on all employees of a shop merely based on a single employee’s misconduct. The court’s decision to read down the circular was aimed at ensuring that action was only taken against those employees who were directly implicated in the overpricing, based on sufficient prima facie evidence.

Further, the court acknowledged the state government’s efforts to digitize TASMAC operations, which would help prevent misconduct such as overpricing in the future. The AAG assured the court that once the digitization process was complete, the computerized billing system would ensure transparency and accountability in the pricing of goods sold in TASMAC shops, thus addressing the root cause of the issue. The court also noted that, while the petitioners had raised concerns about the legality of the circular, the remedy for such disputes could lie in industrial dispute procedures under the Industrial Disputes Act.

In conclusion, the Madras High Court upheld the circular’s intent but modified its application, clarifying that collective disciplinary action could only be taken when prima facie evidence of misconduct existed. The court disposed of the petition in favour of a fair and balanced approach, ensuring that no employee would be punished without evidence of their involvement in the alleged misconduct.