Employer Cannot Use 'Unsatisfactory Performance' As Guise To Bypass Disciplinary Inquiry For Misconduct: Supreme Court

"Law does not permit the use of ‘unsatisfactory performance’ as a disguise to bypass formal disciplinary proceeding. It is a settled proposition of law that what cannot be done directly cannot be done indirectly," Supreme Court, in a significant ruling dated May 29, 2026, held that while an employer has the discretion to terminate a probationer’s services for unsuitability, such discretion cannot be used as a facade to bypass a formal disciplinary inquiry for alleged misconduct.

A bench of Justices J.K. Maheshwari and Atul S. Chandurkar observed that if the real "foundation" of the termination is an allegation of misconduct rather than a genuine assessment of performance, the order becomes punitive and stigmatic, requiring compliance with the principles of natural justice.

The Respondent No. 1 was appointed as an Assistant General Manager (Networking) on probation in Vijaya Bank (now amalgamated with Bank of Baroda). During his probation, he was suspended over allegations of unauthorizedly removing confidential tender files, though the suspension was later revoked without prejudice to the bank's right to initiate an inquiry. After extending his probation twice, the Bank terminated his services under Regulation 16(3)(a) of the Vijaya Bank (Officers’) Regulations, 1982, citing unsatisfactory performance, a decision that was successfully challenged by the employee before the Calcutta High Court.

The primary question before the court was whether the termination order, ostensibly passed as a termination simpliciter during probation, was in reality founded on allegations of misconduct. The Court was also called upon to determine whether the materials relied upon by the Bank to justify "unsatisfactory performance" were objective or merely a pretext to avoid a formal departmental inquiry.

Discretion To Terminate Probationer Is Not Unchecked

The Court noted that under Regulation 16(3)(a), the Competent Authority retains the discretion to assess a probationer’s suitability. However, the bench clarified that in the realm of service law, especially when the employer is the State or its instrumentality, this discretion is not "unchecked or unscreened." The Court emphasized that subjective satisfaction must be rooted in objective facts such as performance appraisals or specific assessments.

The judges observed that a distinction must be drawn between a routine non-stigmatic termination for unsuitability and a disguised punitive termination. If the decision is founded on allegations of misconduct or severe deficiency, the termination becomes stigmatic and cannot stand without affording the probationer an opportunity of hearing.

Distinction Between Foundation And Motive In Termination

Relying on the precedent in Dipti Prakash Banerjee vs. Satyendra Nath Bose National Centre for Basic Sciences, the Court examined the thin line between "foundation" and "motive." It noted that if findings of misconduct are arrived at behind the back of an officer without a regular inquiry, a simple order of termination is to be treated as "founded" on those allegations and is legally bad.

The Court held that the facade of a termination order may appear simpliciter, but it is the duty of the court to travel beyond the order to find the real background. In this case, the bench found that the Bank’s internal records explicitly stated that they initially intended to initiate major penalty proceedings but chose to invoke the probation rules instead because the formal process was seen as "onerous."

"The scheme of probation is designed to judge the ability, efficiency, and overall fitness of the probationer... when critical feedback is withheld, it not only sets the probationer for a potential failure, but also undermines the fairness of the evaluation process."

Performance Memos Lacked Evidentiary Value

The Bank relied on three specific memos to justify the termination. However, the Court found that one memo regarding the OLTAS system was contradicted by a letter from the Government of India, which had praised the employee's work as "praiseworthy." Another memo regarding a fund transfer delay was found to be a result of a technical fault at the State Bank of India, for which no liability could be attributed to the respondent.

Uncommunicated Adverse Remarks Violate Natural Justice

The third memo, which contained serious allegations regarding the employee’s behavior with engineers and security lapses, was never served upon the respondent. The Court held that "it is well-settled that uncommunicated adverse remarks or charges should not be read to the prejudice of an employee." Consequently, the Court ruled that the memo carried no value in the eyes of the law and its use as a basis for termination was arbitrary.

The Bench concluded that the sequence of events demonstrated a "calculated intent" on part of the Bank to orchestrate a pretextual termination. By choosing to forego a departmental inquiry despite suspending the employee for misconduct, and instead relying on unsubstantiated grounds of poor performance, the Bank rendered the termination order legally unsustainable.

While upholding the High Court's decision to quash the termination, the Supreme Court modified the relief. Considering the peculiar facts and the long passage of time, the Court directed that the respondent be entitled to 50% backwages from the date of termination until the date of his superannuation, along with all consequential benefits notionally. The substituted appellant, Bank of Baroda, was directed to settle these benefits within three months.

Date of Decision: May 29, 2026