Destination India-tips for the potential investor Part II

Part II of the article 'Destination India-tips for the potential investor' focuses on some lesser known legal aspects of 'labour' as a factor of production in India.


Destination India : Tips for the potential investor

Part II


Part I of this article brought forth some of the lesser known legal aspects related to investment in India in land as a factor of production.

This part covers both the ‘blue collar’ workmen and the ‘white collar’ executives. Again, because of the federal character of the Constitution, two sets of laws apply to the entire range of activities from hiring to firing. India being a social democracy, has a regime of labour laws which is tilted towards the ‘blue collar’ workman. Indeed many such laws apply to workmen but don’t apply to the management. Forming trade unions is a fundamental right guaranteed by the same provisions of the Constitution which also guarantees the freedom of trade, business and profession, i.e., right to work. So firing a ‘blue collar’ workman is far more difficult than firing a non-workman who is a part of the management. The capacity of decision making is the line that divides the two categories. The right to strike is a statutory right and closure of business or voluntary winding up of business is not easy, as it is supervised by courts. Unlike some other laws in India, the compliance with the labour laws is strictly enforced by the courts. Successive governments since 19991 have been under great pressure from European and North American countries to revamp the labour laws, but as a lawyer who has practiced in India for 24 years, I really don’t see it happening in the near future. Partly, the reason for that is that the ‘market’ for labour is not as free or organized as it could be i.e. a workman who is fired may not find another job easily. Considering the economic strata to which the workmen belong, security of tenure becomes a social priority. However, the laws provide for procedures, albeit elaborate, which enable an employer to dismiss a delinquent workman legally. The recent tragedy resulting from labour violence at the Maruti Suzuki factory in Mannesar is really an exception and not a rule.


The hiring and firing of executives (who are not workmen) is relatively easy as their employment is governed mainly by the Indian Contract Act of 1872. One of the provisions of the Contract law (section 27) is that there cannot be a contract in restraint of trade where trade includes the employee’s right to work. In the current legal ethos the courts have been reluctant to enforce ‘non-compete clauses’ because they tend to interpret section 27 in favour of the employee . Similarly, the courts have also been reluctant to enforce the confidentiality clause in an employment contract as it is difficult for the plaintiff (employer) to garner tangible evidence of breach of confidentiality and the benefit of doubt is given to the employee who is always a defendant in such legal action. Even if forensic evidence (based on the data recovered from the computer used by the ex-employee) is submitted in the court the chances of success cannot be accurately predicted as the discretion available to the court is almost always used to protect the employee against the employer company which is financially much stronger. In my experience the problems regarding ‘non-compete’ and ‘confidentiality’ should be a part of a broader  HR strategy executed through practical tactical measures. However, there have been times when I have advised some large companies to start legal actions for breach of ‘non-compete’ and/or ‘confidentiality’ clauses more as a psychological deterrent to other employees, than with the actual intention of wining such a suit.


Part III of this article focuses on  similar aspects of ‘capital’ as a factor of production in India.

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