TABLE OF CONTENT

A] Introduction ......................................................................................................................... 2

B] Elements of Loss of Confidence .................................................................................... 2

a) Fraud or Breach must be in Connection to Employees Work ..................... 2
b) Employee must Hold Position of Trust and Confidence ................................. 3

C] Title not Conclusive Indicator of Trust and Confidence ...................................... 3

D] Breach of Trust must be Wilful ..................................................................................... 3

E] RELATED CASE LAWS & LEARNINGS ........................................................................ 3

a) Kanhaiyalal Agarawal and others V. Factory Manager, Gwaliar Sugar Co.
Limited 2001 -TMI - 105135 - SUPREME COURT OF INDIA .............................. 3

b) Indian Airlines Limited V. Prabha D. Kanan 2006 -TMI - 105140 -
SUPREME COURT OF INDIA ............................................................................................... 3

c) State Bank of India and another V. Bela Bagchi and Others 2005 -TMI -
105144 - SUPREME COURT OF INDIA ........................................................................ 5

d) Binny Limited V. Their workmen and another1972 -TMI - 105149 -
SUPREME COURT OF INDIA ........................................................................................... 5

e) A.P. SRTC V. Raghudha Shiva Sankar Prasad 2006 -TMI - 105152
SUPREME COURT OF INDIA ............................................................................................... 5

f) Divisional Controller, KSRTC V. M.G. Vittal Rao 2012-I-LLJ-320 (SC) ...... 6

F] Loss of trust and confidence not always grounds for dismissal .......................... 7








Legal Doctrine of Loss of Confidence
A] Introduction
It is increasingly common for employers to cite a loss of trust and confidence with an
employee as a reason for terminating their employment. A breakdown in trust and
confidence can be a fair reason for dismissal. However, as the courts have emphasised
now on a number of occasions, it should not be regarded as an easier route to
dismissal than misconduct and an employer still needs to follow a fair procedure
before arriving at the decision to dismiss.

An employer who loses confidence in an employee requires to establish that trust and
confidence has actually broken down due to the conduct of the employee and will
have to demonstrate they have acted reasonably in treating that as a sufficient reason
to dismiss. This is likely to involve going through a process of giving warnings and
allowing an opportunity for improvement unless the behaviour is so serious that it
amounts to gross misconduct.
Loss of confidence arising from fraud or wilful breach of trust by employee of the
trust reposed in him by his employer or his duly authorized representative is a just
cause for termination of employment
Fraud Meaning Fraud is any act, omission, or concealment, which involves a
breach of legal duty, trust, or confidence justly reposed and is injurious to another.
Breach of Trust Meaning Breach of trust refers to the violation by the employee of
the trust and confidence reposed in him by his employer or duly authorized
representative.
B] Elements of Loss of Confidence
To determine whether the termination of employment based on loss of confidence is
justified, the following elements are generally considered:
1. Whether the fraud or breach of trust is in connection to the employees work;
and
2. Whether the employee concerned is holding a position of trust and confidence.
a) Fraud or Breach must be in Connection to Employees Work
To constitute just cause, fraud or breach of trust must be committed in
connection with the employees work or related to the performance of the
employees functions.
b) Employee must Hold Position of Trust and Confidence
The basic premise for dismissal on the ground of loss of confidence is that the
employee concerned holds a position of trust and confidence. It is the breach
of this trust that results in the employers loss of confidence in the employee.
Thus, loss of confidence ideally applies only to cases involving employee
occupying positions of trust and confidence, e.g., managerial employees, and
those situations where the employee is routinely charged with the care and
custody of the employers money or property, e.g., cashiers, auditors, property
custodian, etc.
C] Title not Conclusive Indicator of Trust and Confidence
However, the title or appellation of the employees position is not a conclusive
indicator as to whether or not an employee holds a position of trust and confidence.
The determination should hinge on the authority actually possessed by employee.
D] Breach of Trust must be Wilful
Ordinary breach will not suffice. It must be wilful and without justifiable excuse,
there must be basis therefor, and it must be supported by substantial evidence and not
merely by the whims or caprice of the employer.

E] RELATED CASE LAWS & LEARNINGS
a) Kanhaiyalal Agarawal and others V. Factory Manager, Gwaliar Sugar Co.
Limited 2001 -TMI - 105135 - SUPREME COURT OF INDIA
In this case Supreme Court has laid down the tests for loss of confidence to find
out as to whether there was bona fide loss of confidence in employee, observing
that-
(i) The workman is holding the position of trust and confidence;
(ii) By abusing such position, he commits act which results in forfeiting the same;
and
(iii) To continue him in service/establishment would be embarrassing and
inconvenient to the employer, or would be detrimental to the discipline or security
of the establishment.
b) Indian Airlines Limited V. Prabha D. Kanan 2006 -TMI - 105140 - SUPREME
COURT OF INDIA
In this case Supreme Court held that loss of confidence cannot be subjective,
based upon the mind of the management. Objective facts, which would lead to a
definite inference of apprehension in the mind of management, regarding
trustworthiness or reliability of the employee, must be alleged and proved.

Indian Airlines airhostess Prabha D Kanan, who had around 23 years of
experience on the Mumbai-Bangalore-Hyderabad-Sharjah air route, was axed
eight years back as she was carrying Rs 22 lakh in cash, besides Arab currency in
her luggage. Kanan got a major relief on Tuesday as the Supreme Court has
directed the national carrier to pay her eight years of salary, besides gratuity and
provident fund.


The judges upheld provision 13 of the IA regulations that empowers its Board of
Directors to take a decision in public interest that cant be challenged in a court of
law.

As per the Indian Airlines regulations Regulation 13
The services of an employee may be terminated without assigning any reasons to
him/her and without any prior notice but only on the following grounds namely:

i) If he is, in the opinion of the Company (the Board of Directors of Indian
Airlines) incompetent and unsuitable for continued employment with the
Company and such incompetence and unsuitability is such as to make his/her
continuance in employment detrimental to the interest of the Company;
OR
ii) If his/her continuance in employment constitutes, in the opinion of the
Company (the Board of Directors of Indian Airlines), a grave security risk
making his/her continuance in service detrimental to the interests of the
Company;
OR
iii) If in the opinion of the Company (the Board of Directors of Indian Airlines)
there is such a justifiable lack of confidence which, having regard to the nature
of duties performed, would make it necessary in the interest of the Company, to
immediately terminate his/her services.


Kanan had been acquitted in the customs and foreign exchange violation cases
and discharged in the criminal case as well. On a customs' call, her Sharjah bound
flight was grounded in Mumbai four years ago and sleuths recovered huge
currency in her luggage.
Her husband was also arrested. Aggrieved by the decision of the directors to sack
her, she had moved the Delhi High Court that ordered payment of six years of
salary to her.

This should be the appropriate compensation for the termination of her services
and loss of employment considering that she has about 10 years of service
hereafter, it had added.

IA challenged this order and its counsel Arun Jaitley and Lalit Bhasin said the
verdict was faulty. Kanan was holding a 'Red Airport Entry Pass'. It gives
unrestricted access to all civil airports in India. Its holder can fly to other
countries on the network of Indian Airlines.
Any doubt on the integrity of the person holding such a post of trust and
confidence may shake the confidence of the employer (Loss of Confidence), the
counsel added.

If such activities are permitted, the same in a given case may provide for risk not
only to the aircraft but also to a large section of people. The subjective
satisfaction of the Board of Directors was based on the confession she made and
the evidences collected by the Directorate of Enforcement, Jaitley and Bhasin
pleaded.


They also argued that her acquittal or exoneration in the cases may not be of
much significance as the validity of the order must be judged having regard to the
fact situation.
But Kanans lawyer objected to it. He argued that though she had made
confession but the same was retracted. She was not found guilty during the trial
and also in the departmental adjudicating proceedings. Thus, she shouldn't have
been sacked.
A Bench of Justices S B Sinha and Dalveer Bhandari held that Directors could
exercise the power in the interest of the company.
In a case of this nature, requirements to comply with principles of natural justice
may not be practicable, they said.
They explained, Keeping in view the situational changes and particularly,
outsourcing of the sovereign activities by the State, this Court has been
expanding the scope of judicial review. The doctrine of unreasonableness has
now given a way to doctrine of proportionality.

c) State Bank of India and another V. Bela Bagchi and Others 2005 -TMI -
105144 - SUPREME COURT OF INDIA
In this case Supreme Court repelled the contention that even if by the misconduct
of the employee the employer does not suffer any financial loss, he can be
removed from service in a case of loss of confidence.
d) Binny Limited V. Their workmen and another1972 -TMI - 105149 - SUPREME
COURT OF INDIA
In this case Supreme Court held that an employer is not bound to keep an
employee in service with whom relations have reached the point of complete loss
of confidence/faith between the two.
e) A.P. SRTC V. Raghudha Shiva Sankar Prasad 2006 -TMI - 105152 SUPREME
COURT OF INDIA
The Supreme Court held that in case of theft, the quantum of theft is not important
and what is important is the loss of confidence of the employer in employee.
f) Divisional Controller, KSRTC V. M.G. Vittal Rao 2012-I-LLJ-320 (SC)
The employee while working as helper was subjected to charge sheet which
contained the article of charges mainly on allegations that the employee stayed
away beyond his duty hours at his place of employment and opened the door of
the blacksmith section with the aid of a duplicate key and pulled the gas cylinder
trolly and equipment from blacksmith section to the cash room along with other
four employees and opened the inner door of the cash room by cutting the padlock
and used the gas cylinder equipment for committing the theft from cash chest. An
enquiry was conducted. The Disciplinary Authority on the report of the inquiry
and after completing the formalities imposed the punishment of dismissal of the
employee from the service. A criminal case was also launched against the
employee.
The employee raised an industrial dispute and the State Government made a
reference to the Principal Labor Court for adjudication of the dispute. The Labor
Court by its award answered the reference in negative holding that there was
sufficient evidence before the enquiry officer to hold that the respondent with his
colluders had actively involved in breaking and opening the door of the cash room
and drilling the cash chest to commit the theft. The employee was caught red
handed and hence the charges were rightly held to be proved.
The High Court, on the writ petition filed by the employee allowed the petition to
the extent that the order of dismissal was modified into an order of termination
and directed the management to pay the terminal benefit since the respondent had
retired from the services accepting the contention of the employee that since he
was acquitted from criminal case he was entitled to all consequential
benefits.. However the High Court held that the employee was not eligible to get
back wages or other monetary benefits till the date of his termination.
On appeal by the employee the Division Bench of the High Court allowed the writ
appeal of the employee. The Division Bench held that the employee was entitled
to be reinstated into service with all consequential benefits. However, since he
was retired from service, he was entitled to 50% of back wages till the date of
retirement. He was also entitled retirement benefits. The Company filed an
appeal before Supreme Court against the decision of Division Bench of the High
Court.
The Supreme Court held that there can be no doubt regarding the settled legal
proposition that as the standard of proof in both the proceedings is quite different,
and the termination is not based on mere conviction of an employee in a criminal
case, the acquittal of the employee in a criminal case cannot be the basis of taking
away the effect of departmental proceedings. The Supreme Court also considered
the principle of loss of confidence. Considering the gravity of the charge the
Supreme Court was of the view that there is no reason to interfere with the order
of the Labor court, which confirmed the dismissal of the employee.



F] Loss of trust and confidence not always grounds for dismissal

Employers should not assume that a loss of trust and confidence between them and
an employee makes it fair to dismiss the employee, a ruling has made clear.

A senior manager and his employer disagreed over the amount of his profit share
and bonus, and the terms of his service contract. The disagreement escalated and
the employee was dismissed on notice. He claimed there had been a breakdown in
their relationship that amounted to a loss of trust and confidence between them, the
implication being that he had been unfairly constructively dismissed.



There is a constructive dismissal when an employer has done something that is so
fundamentally inconsistent with the employer/employee relationship that the
employee is entitled to treat him or her self as dismissed.

According to previous case laws, dismissal based on loss of trust and confidence
between an employer and employee is fair, because it amounts to dismissal for
'some other substantial reason'. However, in this case, the court decided the
employee had been unfairly dismissed.

The court decided that the real reason for the employee's dismissal was the
disagreement over his profit share, bonus and service contract. Neither side had
really tried to negotiate and if either had got what they wanted it would have
carried on quite happily. So, while a dismissal following a loss of trust and
confidence often will be fair because it amounts to 'some other substantial reason'
for the dismissal, it was not in this case. However, the court reduced the
employee's award by 40 per cent on the basis that his behaviour was partly
responsible for his dismissal.

Recommendation
Employers should ensure they are clear when a disagreement with an employee has
become sufficiently serious to amount to a loss of trust and confidence, and
whether or not the loss of trust and confidence amounts to 'some other substantial
reason', making a dismissal fair.