National Insurance Co. Ltd Vs. General Insurance Devs. Officers Asson. and Ors
 INSC 576 (3 April 2008)
Dr. ARIJIT PASAYAT & P. SATHASIVAM
REPORTABLE CIVIL APPEAL NO. 2438 OF 2008 (Arising out of SLP (C) No. 8115 of
2003) (With Civil Appeal No. 2439 /2008 SLP (C) No.8117/2003) (Civil Appeal No.
2440 /2008 SLP (C) No.8118/2003) (Civil Appeal No. 2441 /2008 SLP (C)
No.8324/2003) (Civil Appeal No. 2442 /2008 SLP (C) No.8325/2003) (Civil Appeal
No. 2450 /2008 SLP (C) No. 12693/2003) (Civil Appeal No. 2454 /2008 SLP (C)
No.12438/2003) (Civil Appeal No. 2456 /2008 SLP (C) No. 13261/2003) (Civil
Appeal No. 2437 /2008 SLP (C) No.8114/2003) (Civil Appeal No. 2444-2445 /2008
SLP (C) No.8119-8120/2003) (Civil Appeal No. 2446-2447 /2008 SLP (C)
No.8121-8122/2003 (Civil Appeal No. 2448-2449 /2008 SLP (C) No.8158-8159/2003)
(Civil Appeal No. 2453/2008 SLP (C) No. 13861/2003 (Civil Appeal No. 2451/2008
SLP (C) No. 13949/2003) (Civil Appeal No. 2452/2008 SLP (C) No.13280/2003)
(Civil Appeal No. 2455/2008 SLP (C) No. 12930/2003) T.C.( C ) No.60/2004,
61/2004, 62/2004, 63/2004, 64/2004, 73/2004, 42/2005 and 47/2005) Dr. ARIJIT
1. Leave granted.
2. These appeals are taken up alongwith Transfer Case (Civil)
Nos.60-64/2004, 73/2004, 42/2005 and 47/2005.
3. In all these cases the basic issue is the legality of General Insurance
(Rationalisation of Pay Scales and Other Conditions of Service of Development
Staff) Amendment Scheme, 2003 (in short '2003 Scheme').
4. The present scheme purports to amend the earlier scheme framed under
Section 17A of the General Insurance (Business Nationalization) Act, 1972 (in
short the 'Act'). The principal scheme was framed in 1976 in exercise of powers
under Section 16(1)(g) of the Act. The scheme was amended earlier in the years
1987, 1990 and 1996 and 2000. The principal scheme of 1976 was challenged but
the challenge was turned down and legality of the scheme was upheld by this
Court. Several writ petitions have been filed by Development Officers
questioning legality of the scheme on the ground that there was unilateral
change of service conditions of the Development Officers in Class II category.
The declaration sought for in the writ petitions was that administrative
guidelines dated 5.2.2003 were without power, jurisdiction and legal sanctity.
It was pointed out that while changing service conditions of the Development
Officers in Class II category the service conditions of other employees in
Class I, III and IV were not touched. According to the Development Officers the
following stipulations affected them:
"Cost Norms: As per 2 (c) in the amendment, the proviso of clause 7 of
the original scheme of 1976 as amended in 1990 was omitted.
The proviso inserted as per 1990 amendment is as follows:
"Provided that for the purposes of Para 11, 11A and 13 cost shall mean
gross emoluments paid to the development officer during a performance
The Development Officer Marketing governed by cost norms has to perform
within stipulated cost ratio. As per the pre amended scheme he gets the benefit
of two tier cost system i.e.
1. For the purpose of increment.
2. For the purpose of incentives.
5. Now by the 2003 amendment single cost system has been introduced whereby
the cost system for the purposes has been withdrawn by deleting the proviso to
The comparison table is as follows:
Development Officer Applicable in Applicable in relation Operating at
increment to incentives.
City/town As per 2003 Existing As per 2003 Existing Cost ratio cost ratio
cost ratio cost ratio A Cities 7% 8% 7% 7% B Cities/Towns 8% 9% 8% 8% C Other
Centres 10% 11% 10% 10% Existing scheme was amended in 1996.
"Cost ratio" is the ratio expressed as percentage of cost incurred
on a person of the development staff to the scheduled premium income procured
through him during the concerned year.
6. Cost relaxation was done from time to time by amending the scheme. The
2003 amendment brought down the cost ratio by 1% in all centers thereby
increasing the cost ratio beyond stipulated limits. This resulted in monetary
loss by way of decrement. This would not only lead to reduction in salary but
would ultimately result in termination of service.
7. Through the following illustration it is demonstrated that as to how the
consequence of the 2003 amendment adversely affects a development officer
having a basic pay of Rs.13,630/- SALARY COST RATIO PREMIUM TO BE PROCURED.
EXISITING BASIC, DA, H RA,CCA 8% Rs.31,88,000 / Rs.2,55,096 REVISED BASIC,
DA,HRA,CCA Rs.2,55,096 Add: Non-Core allowance 7% Rs.44,15,000 / Rs. 54,000
Conveyance +Entertain- Ment+Phone+TE Rs.3,09,096
8. The above illustration shows how a development officer put on constrain
to maintain his cost in revised norms he has to procure an additional premium
of Rs.12,27,000/- in this competitive market scenario or other wise he will
directly loose the monetary benefits proportionate to his premium income.
9. The core benefits that a Development Officer gets is as indicated in the
original scheme in the shape of "gross emoluments" which is an
aggregate of basic pay, dearness allowance, hill station allowance, house rent
allowance and city compensatory allowance.
10. The Non-Core benefits such as Conveyance, Entertainment, Telephone
allowance, Travelling Expenses incurred to procure premium, are exempted from
Income Tax as per CBDT Rules. But through the 2003 Amendment the respondents
have added the entire non core benefits to the cost ratio. Thereby as per the
above illustration the development officer who was procuring a business of
Rs.32,00,000/- premium has to now procure a business of Rs.43,36,000/- to
maintain the cost ratio and to make himself eligible for an increment.
11. Deletion of ASPI Provision.
As per the original scheme of 1976 para 12 indicates that a development
officer shall have to procure a minimum premium income out of all or any of the
following types of business namely:
1. All risk insurance,
2. baggage insurance,
3. cash-in-transit insurance,
4. cattle insurance,
5. insurance of pump sets and lifts, 6.
machinery breakdown insurance, 7.
pedal cycle insurance, 8. personal accident insurance for individuals
including the janata personal accident policies, 9. shop keepers or house
holders comprehensive insurance, 10. any other class of insurance notified by
the Central Government from time to time in this behalf. This has been omitted
by 2003 Amendment.
The premium earned in this category is called Adjusted schedule premium
income. If a development officer procures premium on this count the same is
credited to his account with double benefit. Such a premium earned by a
development officer gives him the benefit of adjusted premium income that is
ASPI as the specified business prescribed by the company from time to time. If
premium is not procured under this category the schedule premium income earned
shall be notionally reduced by an amount equal to the short fall and such
reduction shall not be deemed as penalty.
Withdrawal of para 12 through the 2003 amendment pushes the development
officer into an extreme difficulty in achieving the premium targets and
fulfilling the cost norms.
This not only results in monetary loss in the form of non core allowance but
also leads to decrements thereby adversely affecting the service conditions.
12. Change in incentive Scheme Through paras 14, 14A and 15 a Development
Officer would get Cost based Growth Incentive and Profit Incentive.
The growth incentive and cost saving profit incentive is based on the
performance of the development officer. The margin in cost ratio as provided in
the amended scheme 1987 are withdrawn and replaced by one single incentive
scheme which is totally based on the profitability as per the 2003 amendment.
This incentive is directly related to the claims arising due to accidents, and
natural calamities which are beyond the control of a development officer. This
is arbitrary as in any industry it is universally accepted that the incentives
to the marketing staff shall be linked to their sales performance.
13. No career prospects:
The 2003 amendment gives a development officer an option to take a voluntary
retirement or in the alternative to opt to be in the administration. But the
scheme is silent in regard to career prospects of a development officer who
opts to work in the administration. Without specifying as to what would be the
promotional avenues for a person opting for working in administration. Such an
option would be meaningless and the amended scheme would arbitrarily push the
development officer out of the company.
A Development Officer who works in a particular area invests his time and
energy to familiarize himself with the market conditions and thereafter starts
procuring business for the Company. Now by the 2003 amendment the respondent
has brought in transfer policy where a Development Officer can be transferred
to totally a new place even to a different State also. This would not only make
the life of a Development Officer difficult but he would not be in a position
to procure business for a company immediately. This action of the respondent
virtually amounts to killing of the insurance business.
It has been pointed out that because of the introduction of the scheme not
only the Development Officers suffered financial loss but there shall be great
deal of inconvenience caused because of the transfer modes.
A Development Officer because of his personal efforts nourishes the locality
and with his personal touch attracts more persons for being covered by
insurance coverage. It is also submitted that though there is provision for
being transferred to administrative posts, it is not clear as to what are the
15. In response, learned counsel for the respondents submitted that Section
17A provides for framing, amending, adding to and altering schemes governing
the conditions of service of the various classes of employees in various Public
Sector General Insurance Companies. Section 17A(4) provides a copy of every
such scheme is required to be laid before each House of Parliament. Section
17A(6) provides that every such scheme shall have effect notwithstanding any
other law, award, instruments etc. The Central Government has power under
Section 17A(2) to amend a scheme under Section 16(1)(g). The impugned amendment
scheme was made taking into consideration the recommendations made by Malhotra
Committee in its report which is known as "Malhotra Committee Report on
Reforms in the Insurance Sector".
16. It is the stand of the respondents that as a matter of fact the report
was foundation for introduction of the Insurance Regulatory and Development
Authority Act, 1999 (in short 'IRDA Act'). On the basis of the recommendations
amendments were made to the Act, Life Insurance (Business Nationalization) Act,
1956 and the Insurance Act, 1938 (in short the 'Insurance Act').
The Malhotra Committee examined the state of the insurance industry and gave
specific suggestions regarding the working of Development Officers and other
reforms inter-alia necessary for the growth of the insurance industry.
17. It is pointed out by learned counsel for the respondents that it is not
correct to say that in every case in routine manner transfers will be affected.
The cost ratio, it is pointed out, is the same as was in 1976. It is stated
that normally a Development Officer who functions within the cost ratio will
not be transferred. Presently, the practice is to transfer within 150 kms. It
is also stated that promotional norms for Class I, III and IV category officers
have been finalized. In case of Class II officers because of order of status
quo passed by some High Courts the same is at the draft stage and the same
shall be finalized after disposal of these cases. It is also pointed out that
there is scope for wage revision on a five year basis. The periods to which
these cases relate are Ist August, 2002 and Ist August, 2007. The revision has
not been effected because of status quo order passed by this Court and various
High Courts which are the subject matter of challenge in the Special Leave
Petitions where leave has been granted.
18. It is true as contended by learned counsel for the writ petitioners that
a personal factor has a role to play notwithstanding the overall importance of
the entity. With opening of economy there is a remarkable change in the various
sectors including the insurance sector. Since modifications appear to have been
done for the purpose of rationalization, there is no scope for interference
because essentially a policy decision is immune from judicial review unless it
is founded on no rational basis or material to justify the change in policy.
19. It is to be noted that initially the Central Government had amended the
scheme under Section 16(1)(g) which was struck down by a three-Judge Bench of
this Court in Ajoy Kumar Banerjee and Ors. v. Union of India and Ors. (1984 (3)
SCC 127). Thereafter the Act was amended in the year 1985 w.e.f.
the appointed day under the Act i.e. 1.1.1973. By virtue of this amendment a
new Section 17A was introduced in the Act and the Central Government was
empowered to amend the scheme under Section 16(1)(g) and the authority was
upheld in Kishan Prakash Sharma and Ors. v. Union of India and Ors. (2001 (5)
SCC 212). It was inter-alia observed in the said case as follows:
"2. The Preamble to the Act explains the purpose of the Act as to
provide for the acquisition and transfer of shares in the Indian insurance
companies and undertakings of other insurers in order to serve better the needs
of the economy in securing development of general insurance business in the
best interest of the community and to ensure that the operation of the economic
system does not result in concentration of wealth to the common detriment for
the regulation and control of such business and for matters connected therewith
or incidental thereto. Section 2 declared that it was for giving effect to the
policy of the State towards securing the principles specified in Article 39(c)
of the Constitution and under Section 3(a) "acquiring company" has
been defined as any Indian insurance company and where a scheme had been framed
involving the merger of one or more insurance companies in another or
amalgamation of two or more such companies means the Indian insurance company
in which any other company has been merged or the company which has been framed
as a result of amalgamation. Section 4 provides that on the appointed day all
the shares in the capital of every Indian insurance company shall be
transferred to and vested in the Central Government free of all trusts,
liabilities and encumbrances affecting these. Section 5 provides for transfer
of the undertakings of other existing insurers. Section 6 provides for the
effect of transfer of undertakings.
Section 8 provides for provident fund, superannuation, welfare or any other
Section 9 stipulates that the Central Government shall form a government
company in accordance with the provisions of the Companies Act to be known as
"General Insurance Corporation of India"
for the purpose of superintending, controlling and carrying on the business
of general insurance.
Section 10 stipulates that all shares in the capital of every Indian
insurance company which shall stand transferred to and vested in the Central
Government by virtue of Section 4 shall immediately on such vesting, stand
transferred to and vested in the Corporation. Chapter 4 deals with the amounts
to be paid for acquisition. Chapter 5 of the Act deals with the scheme for
reorganisation of general insurance business. Sections 16 and 17 are important,
to which we will advert to later and by amendment of the Act by an Ordinance
issued in 1984 and subsequently replaced by an Act in 1985, the said provisions
have been amended and a fresh provision was introduced as Section 17-A to which
we will advert later in detail. After the Act came into force, several schemes
have been framed by the Board of Directors and two Schemes, one dated 30-
7-1977 amending the provisions regarding sick leave and another Scheme
pertaining to the payments to be made to the provident fund were challenged
before this Court in the case of Ajoy Kumar Banerjee v. Union of India. The
main ground of attack in that writ petition is that the amended notification
altering the conditions of service is illegal as the Central Government has no
power to issue it under Section 16 of the Act and as such the notification
framing the scheme is ultra vires Section 16(1) of the Act. It was contended
that once the merger of the Indian companies had taken place and the process of
reorganisation was complete on 1-1-1974 as stated before by forming the 4 insurance
companies by 4 Schemes framed in 1973, there could be no further reorganisation
of the general insurance business and the merger of more insurance companies
inasmuch as in the amended Scheme there was no merger or reorganisation
contemplated unlike the 1974 Scheme. Mere amendment of the terms and conditions
of service of the employees unconnected with or not necessitated by
reorganisation of the business or merger or amalgamation of the companies could
not fall within Section 16(1)(g) of the Act. It was also noticed by this Court
that under the Life Insurance Corporation Act and the Banking Companies Act
provisions have been made to frame regulations independently of the
reorganisation and there is no such comparable power under the Act and,
therefore, the Schemes impugned herein are made without authority of the law.
This contention found favour with this Court. On interpretation of the
provisions it was held that the power under Section 16(1)(g) to frame scheme
for rationalising the provisions regarding pay scales and other terms and
conditions of service of officers and other employees wherever necessary if
unrelated to the object envisaged in sub-section (2) of Section 16 of the Act
will not fall within the scope of exercise of powers and it would fall outside
the same if the power exercised is beyond delegation and in view of the fact
that the Scheme of 1980 so far as it does not relate to the amalgamation or
merger of the insurance company is not warranted by Section 16(1) of the Act.
Ultimately, this Court held that the Amended Scheme of 1980 was bad as beyond
the scope of the authority of the Central Government under the Act. Further it
was also made clear that the parties will be at liberty to adjust their rights
as if the Scheme had not been framed and it was further made clear that this
order will not prevent the Government, if so advised, to frame any appropriate
legislation or make any appropriate amendment giving power to the Central
Government to frame any scheme as it considers fit and proper.
xx xx xx
6. At this stage, we may notice the following amendments effected to the
(a) In the definition clause in Section 3(o), the expression
"scheme" was altered to mean not only one framed under Section 16(1)
but also "a scheme framed under Section 17-A".
(b) Section 16 of the principal Act was amended by introducing an additional
sub-section (8) after sub-section (7) to the effect that the power to frame a
scheme under sub-section (1), and the power conferred under sub-section (6) to
add to, amend or vary any scheme framed under this section, shall include the
power to frame such scheme with retrospective effect from a date not earlier
than the appointed day.
(c) Section 17-A is introduced in which a validation clause and some
consequential amendments have been added which we reproduce hereunder:
"17-A. (1) The Central Government may, by notification in the Official
Gazette, frame one or more schemes for regulating the pay scales and other
terms and conditions of service of officers and other employees of the
Corporation or of any acquiring company.
(2) A scheme framed under sub-section (1) may add to, amend or vary any
scheme framed under Section 16 including any addition, amendment or variation
made therein by notification under sub- section (6) of Section 16 with respect
to rationalisation or revision of pay scales and other terms and conditions of
service of officers and other employees of the Corporation or of any acquiring
company, to provide for further rationalisation or revision of such pay scales
and other terms and conditions of service notwithstanding that such further
rationalisation or revision is unrelated to, or unconnected with, the
amalgamation of insurance companies or merger consequent on nationalisation of
general insurance business.
(3) The Central Government may, by notification, add to, amend or vary any
scheme framed under this section.
(4) The power to frame a scheme under sub- section (1), and the power
conferred by sub-section (3) to add to, amend or vary any scheme framed under
this section, shall include the power to frame such scheme, or, as the case may
be, to make such addition, amendment or variation in any scheme framed under
this section, with retrospective effect from a date not earlier than the
(5) A copy of every scheme, and every amendment thereto, framed under this
section shall be laid, as soon as may be after it is made, before each House of
(6) The provisions of this section and of any scheme framed under it shall
have effect notwithstanding anything to the contrary contained in any other law
or any agreement, award or other instrument for the time being in force.
(7)(1) Notwithstanding anything contained in any judgment, decree or order
of any court, tribunal or other authority or in any other law, agreement, award
or other instrument for the time being in force, every scheme framed or
purporting to have been framed with retrospective effect under sub- section (1)
of Section 16 of the principal Act and every notification made or purporting to
have been made with retrospective effect under sub-section (6) of that section
before the commencement of the General Insurance Business (Nationalisation)
Amendment Ordinance, 1984 shall be, and shall be deemed always to have been,
for all purposes, as valid and effective as if the amendment made in the said
Section 16 by Section 3 of this Ordinance had been part of that section and had
been in force at all material times.
(2) Notwithstanding anything contained in any judgment, decree or order of any
court, tribunal or other authority or in any other law, agreement, award or
other instrument for the time being in force, (a) every scheme framed, or
purporting to have been framed, by the Central Government under sub-section (1)
of Section 16 of the principal Act;
and (b) every notification made, or purporting to have been made by the
Central Government under sub- section (6) of the said Section 16, before the
commencement of the General Insurance Business (Nationalisation) Amendment
Ordinance, 1984, insofar as such scheme or notification provides (whether with
or without retrospective effect) for any rationalisation or revision of pay
scales or other terms and conditions of service of officers and other employees
of the Corporation or of any acquiring company, otherwise than in relation to,
or in connection with, amalgamation of insurance companies of merger consequent
on nationalisation of general insurance business shall be, and shall be deemed
always to have been, for all purposes, as valid and effective as if Section
17-A, as inserted in the principal Act by Section 4, of this Ordinance had been
part of the principal Act, and had been in force at all material times and such
scheme or notification insofar as it provides as aforesaid had been framed or
made, under the said Section 17-A:
Provided that nothing in this section shall apply to, or in relation to, the
notification dated the 30th day of September, 1980, framing the General
Insurance (Nationalisation and Revision of Pay Scales and Other Conditions of
Service of Supervisory, Clerical and Subordinate Staff) Second Amendment
Explanation.In this section, the expressions "acquiring company"
and "Corporation" shall have the meanings respectively assigned to
them in the principal Act."
Xx xx xx
10. Prior to 1972, there were about 106 general insurance companies both of
Indian and foreign origin. The conditions of service of the employees of the
said insurance companies were governed by the respective contracts of service
between the companies and the employees. The set-up, working, management and
employment of staff by the erstwhile insurance companies showed no uniformity.
The erstwhile companies were managed in diverse managerial systems and no
uniform pattern of management could be discovered by the Central Government
after the nationalisation. There was a pronounced disparity between one company
and the other at all levels in the matter of remuneration and designations for
Employees of different companies were holding different designations and
were paid differently for the same kind of work at the same station. Some
companies gave very high-sounding designations and paid salaries which were not
commensurate with the work. So the necessity for rationalisation of the entire
structure of general insurance business, including designations, pay scales and
other conditions of service arose.
Xx xx xx
17. The challenge now to the enactment is that this Court having held, the
expression "scheme for reorganisation of general insurance business"
will not include a scheme made after the reorganisation is complete; that no
further schemes, except in connection with the reorganisation of the general
insurance business and merger of more insurance companies could be effected and
the impugned Scheme did not involve any such merger; that therefore, this
Scheme is ultra vires the Act; that the provision enabling the Central
Government to frame the Scheme is bad and the provision which gives
retrospectivity to the said enactment is equally bad as there are no guidelines
in Section 17-A.
Though there can be no limitation regarding providing better terms and
conditions of service the same cannot be modified to the detriment of the
workmen. The power that has been conferred upon the Central Government to frame
the Scheme without guidelines is bad and the guidelines have to be read into
the provisions in such a manner that the benefit which is already given to the
workmen should not be taken away and there should be enough scope for
collective bargaining particularly in the absence of consultation and when
there is no limitation on upward revision, the conferment of the power upon the
authority concerned is bad.
18. So far as the delegated legislation is concerned, the case-law will
throw light as to the manner in which the same has to be understood and in each
given case we have to understand the scope of the provisions and no uniform
rule could be laid down.
The legislatures in India have been held to possess wide power of
legislation subject, however, to certain limitations such as the legislature
cannot delegate essential legislative functions which consist in the
determination or choosing of the legislative policy and of formally enacting
that policy into a binding rule of conduct. The legislature cannot delegate
uncanalised and uncontrolled power. The legislature must set the limits of the
power delegated by declaring the policy of the law and by laying down standards
for guidance of those on whom the power to execute the law is conferred.
Thus the delegation is valid only when the legislative policy and guidelines
to implement it are adequately laid down and the delegate is only empowered to
carry out the policy within the guidelines laid down by the legislature. The
legislature may, after laying down the legislative policy, confer discretion on
an administrative agency as to the execution of the policy and leave it to the
agency to work out the details within the framework of the policy. When the
Constitution entrusts the duty of law-making to Parliament and the legislatures
of States, it impliedly prohibits them to throw away that responsibility on the
shoulders of some other authority. An area of compromise is struck that
Parliament cannot work in detail the various requirements of giving effect to
the enactment and, therefore, that area will be left to be filled in by the
delegatee. Thus, the question is whether any particular legislation suffers
from excessive delegation and in ascertaining the same, the scheme, the
provisions of the statute including its preamble, and the facts and
circumstances in the background of which the statute is enacted, the history of
the legislation, the complexity of the problems which a modern State has to
face, will have to be taken note of and if, on a liberal construction given to
a statute, a legislative policy and guidelines for its execution are brought
out, the statute, even if skeletal, will be upheld to be valid but this rule of
liberal construction should not be carried by the court to the extent of always
trying to discover a dormant or latent legislative policy to sustain an
arbitrary power conferred on the executive. These very tests were adopted in
Ajoy Kumar Banerjee case also to examine whether there is excessive delegation
in framing schemes and reading the preamble, the scheme and the other
provisions of the enactment taking note of the general economic situation in
the country, the authorities concerned had to frame appropriate schemes.
Therefore, it is not open to the petitioners to contend that there is excessive
delegation in relation to the enactment to frame schemes.
19. In Ajoy Kumar Banerjee case this Court after holding that there is no
excessive delegation observed that the Scheme framed was ultra vires the
enactment for the Scheme could only be framed once. Now the argument is that
once a scheme is framed no further scheme should be allowed to be framed. If
the legislature recognises the fact the rationalisation resulting from the
merger of several companies are not yet over and on that basis enacts a law to
enable the Government to frame appropriate schemes, we do not think that such
step by the legislature is arbitrary or irrational as to be violative of
Article 14 of the Constitution. In Ajoy Kumar Banerjee case this Court pointed
out that though there is power in the Government to revise the pay scales, it
cannot exercise the power more than once at the time of merging different
companies for the purpose of rationalisation and this power could have been
exercised no further.
But now the enactment itself specifically provides that every scheme framed
or purporting to have been framed by the Central Government under Section 16(1)
of the principal Act and every notification made or purporting to have been
made thereunder insofar as such scheme or notification provides for
rationalisation or revision of pay scales or other terms and conditions of the
officers and other employees of the Corporation are deemed always to have been
for all purposes as valid and effective as made under Section 17-A of the Act.
The retrospective effect given to the scheme is only to overcome the difficulty
pointed out by this Court in Ajoy Kumar Banerjee case. That lacuna having been
overcome, it is not open to the petitioners to contend that retrospective
effect given is violative of Articles 14, 19 and 21 of the Constitution.
Validation of invalid rule by amending the main enactment under which it is
made is a well-known legislative device approved by this Court.
Xx xx xx
24. The Central Government, in exercise of the powers conferred under
Section 16(1)(g) of the Act, framed three Schemes for three different
categories of employees relating to (i) supervisory, clerical and subordinate
staff; (ii) officers; and (iii) development staff. The Schemes also provided,
inter alia, various provisions like fixation of pay on promotion, increments,
provident fund and gratuity, etc. When the process of categorisation and
rationalisation was in progress, it was noticed that as per the 1974 Scheme,
contribution to the provident fund was @ 8 per cent of the basic salary and
dearness allowance with an equal contribution of GIC or any of its
subsidiaries. However, LIC and nationalised banks were giving provident fund at
different rates. So as to keep parity with other similar organisations, the
Scheme was corrected by an amending notification issued on 1-6-1976 and it was
provided that the provident fund shall be contributed by every employee at the
rate of 10% of the basic pay plus personal pay and special pay, if any, in
place of 8% of the basic salary and dearness allowance. Xx xx xx 26. The stand of the respondents is that amendments were made while the
process of rationalisation of pay scales and other service conditions were
still in progress and the process had not been finally completed to achieve
uniformity and inter se rationalisation in terms and conditions of service of
different categories of employees of merged companies. In 1977 various labour
unions presented a charter of demands in relation to revision of pay scales and
service conditions. The Scheme of 1974 contained a provision to the effect that
the provisions of the Scheme relating to scales of pay, dearness allowance etc.
will continue to be in force till the Government modified the same. After
considering the demands of the unions and the view of the management, the
Government formulated guidelines and requested the management to hold
consultations and discussions with the unions so that final views of the unions
may be known and may be taken into account by the Government before modifying
the pay scales, etc. But this course will not indicate that there was an
obligation cast on the Government to formally negotiate with the unions.
However, in keeping with the democratic tradition and to maintain harmonious
industrial relations the management had several rounds of discussions with the
four major registered unions. The procedure of consultations and discussions was adopted in order to
narrow down the differences to the minimum and to ensure that the viewpoint of
the employees was kept in mind before any scheme was finalised by the
20. It was further clarified that if the scheme is prima facie discriminated
it is open to challenge.
21. In para 28 it was held that there was no need for any consultation with
the employees. When the changes introduced by the scheme are considered in the
background of the position in law and the decision of this Court by a
Constitution Bench in Prakash Sharma's case (supra) there is no scope for
interference in these appeals. However, it would be in the interests of the
officers and the insurance companies if the Development Officers who work
within the cost ratio are not transferred unless the transfer is required to be
done in public interest. So far as the promotional prospects and the wage
revision are concerned, a draft policy stated to have been formulated for the
latter be finalized within a period of three months. The writ petitions filed
in different High Courts stand dismissed because of this judgment.
Consequentially, the interim orders passed which form the subject matter of
challenge in the appeals are vacated subject to the directions given supra.
22. The appeals are allowed. The transfer petitions stand disposed of.