K.I.
Shephard & Ors Vs. Union of India & Ors [1987] INSC 259 (18 September
1987)
MISRA
RANGNATH MISRA RANGNATH DUTT, M.M. (J)
CITATION:
1988 AIR 686 1988 SCR (1) 188 1987 SCC (4) 431 JT 1987 (3) 600 1987 SCALE
(2)599
CITATOR
INFO :
F
1989 SC 568 (12) RF 1989 SC1136 (44) RF 1992 SC 248 (79)
ACT:
Banking
Regulation Act, 1949:
Section
45-Amalgamation of banks-Employees excluded from employment by transferee
banks-Draft scheme excluding names of employees-Doctrine of natural justice-Whether
applicable-Post- decisional hearing-Whether sufficient-Examination of dispute
regarding requirement of Procedure Whether precluded-Scheme making
process-Whether legislative. Administrative Law:
Amalgamation
of banks-Exclusion of employees from employment by transferee banks in
accordance with amalgamation scheme-Doctrine of natural justice- Applicability
of.
HEADNOTE:
The
Hindustan Commercial Bank, the Bank of Cochin Ltd.
and
Lakshmi Commercial Bank were amalgamated with Punjab National Bank, Canara
Bank, State Bank of India respectively in terms of separate schemes drawn under
the Banking Regulation Act, 1949, and pursuant thereto 125 employees of these
banks were excluded from employment, and their services were not taken over by
the respective transferee banks. Some of these excluded employees filed writ
petitions before the High Court which granted partial relief, but on appeal by
the transferee Bank the Writ Petitions were dismissed by the Division Bench.
Against
this, appeals by Special Leave were filed before this Court. Some of the
excluded employees filed writ petitions before this Court directly.
It
was contended on behalf of the excluded employees that the draft schemes did
not include any name of employees intended to be excluded; that no opportunity
of being heard as afforded to them before exclusion was ordered, and the
authorities concerned had not acted fairly; that none of them was responsible
for ficticious, improper or 189 on-business like advances of loan to parties
thereby bringing conditions near about bankruptcy for the appropriate banking
companies, that many other employees against whom there were definite charges
already pending enquiry or even orders of dismissal had been proposed had been
taken over and retained in service of the transferee banks while these excluded
employees, without justification, had been called upon to face this unfortunate
situation.
The
transferee banks, the Reserve Bank of India and the Union of India filed
affidavits in opposition. It was contended on behalf of the Union of India that
the scheme in respect of each of the amalgamated banks had been approved by it
as required under the Act and since finality was attached to such schemes, the
schemes could not be challenged, particularly in view of the provisions
contained in Article 31-A of the Constitution. It was contended on behalf of
the Reserve Bank of India that law did not require that the draft scheme should
contain the names of the employees to be excluded, that the incorporation of
the names finalised on the basis of scrutiny of the records before the schemes
were placed before the RBI was sufficient compliance of the requirements of the
law; that the provisions of the Act did not confer any right on the employees
of being heard; that the scheme-making process was legislative in character
and, therefore, did not come within the ambit of natural justice, and the
action, not being judicial or quasijudicial and, at the most, being
administrative or executive was also not open to challenge on allegations of
violation of rules of natural justice;
that
moratorium under the statutory provisions could not be beyond six months and in
view of the fact that the entire operation had to be finalised within a brief
time frame, the requirement of an enquiry by notice to all the officers to be
excluded could not have been intended to be implanted into the provisions of
section 45 and that provision of compensation had been made for those who were
excluded from the respective schemes.
Allowing
the writ petitions and appeals, this Court, ^
HELD:
1. Rules of natural justice apply to administrative action and the decision to
exclude a section of the employees without complying with requirements of
natural justice was bad. [206H]
2.1
Fair play is part of public policy and a guarantee for justice to citizens. In
our system of Rule of Law, every social agency conferred with power is required
to act fairly so that social action would be just, and there would be
furtherance of the well-being of citizens. [207E] 190
2.2
The rules of natural justice have developed with the growth of A civilization
and the content thereof is often considered as a proper measure of the level of
civilization and Rule of Law prevailing in the community.
[207E-F]
2.3
Natural justice generally requires that persons liable to be directly affected
by proposed administrative acts, decisions or proceedings be given adequate
notice of what is proposed so that they may be in a position (a) to make
representation on their own behalf; (b) or to appear at a hearing or enquiry
(if one is held); and (c) effectively to prepare their own case and to answer
the case (if any) they had to meet. Even when a State agency acts
administratively, rules of natural justice would apply.[206C-D]
3.1
Section 45 of the Banking Regulations Act provides a legislative scheme and the
different steps required to be taken have been put one after the other. On a
simple construction of sub-sections (5) and (6) and on the basis of the
sequence pattern adopted in section 45, it is clear that the Act contemplates
the employees to be excluded to be specifically named in the draft scheme.
Since it is a draft scheme prepared by RBI and right to object or to make
suggestions is extended to both the banking company as also the transferee
bank, and in view of the fact that clause (i) of sub-section (5) specifies this
item to be a matter which may be included in the scheme, it must follow that
the legislative intention is that the scheme would incorporate the names of
such employees as are intended to be excluded in accordance with the scheme.
Once it is incorporated in the scheme, the banking company as also the
transferee bank would be entitled to suggest/object to the inclusion of names
of employees. [199E-F; H; 200A-B]
3.2
In case some employees of the banking company are intended to be excluded,
their names have to be specifically mentioned in the scheme at the draft stage.
The requirement of specific mention is significant and the legislature must be
taken to have intended compliance of the requirement at that stage. The
excluded employees in the instant case, were in employment under the contract
in the banking companies which were private banks. They have been excluded from
service under the transferee banks and the contracts had been terminated as a
result of inclusion of their names in the schemes. This exclusion has adversely
affected this category of employees and has brought about prejudice and adverse
civil consequences to them. [200D-E]
4.1
Natural justice cannot be employed in the exercise of legislative power. Power
has been conferred on the RBI in certain situations to A take steps for
applying to the Central Government for an order of moratorium and during the
period of moratorium to propose either reconstruction or amalgamation of the
banking company. A scheme for the purposes contemplated has to be framed by RBI
and placed before the Central Government for sanction. Power has been vested in
the Central Government in terms of what is ordinarily known as a Henery-8 clause
for making orders for removal of difficulties. [201H; 202A-B]
4.2
Section 45(11) requires that copies of the scheme as also such orders made by
the Central Government are to be placed before both Houses of Parliament. This
requirement does not make the exercise in regard to schemes a legislative
process. Framing of the scheme under section 45 does not involve a legislative
process, and as such, rules of natural justice are applicable to the instant
case. [202C]
4.3
The fact that orders made by the Central Government for removing difficulties
as contemplated under sub-clause (10) were also to be placed before the two
Houses of Parliament makes it abundantly clear that the placing of the scheme
before the two Houses is not a relevant test for making the scheme framing
process legislative. [203B]
5.1
RBI which monitored the three amalgamations was required to act fairly in the
facts of the case. The situation necessitated a participatory enquiry in regard
to the excluded employees. If an opportunity to know the allegations and to
have their say had been afforded, they could have no grievance on this score.
The action deprives them of their livelihood and brings adverse civil
consequences and could obviously not be taken on the ipse dixit of RBI owners
without verification of facts. In view of the time frame, a detailed enquiry
may not be possible but keeping the legislative scheme in view, perhaps, a
simpler enquiry could be afforded. [206E-F]
5.2
In the facts of the case, there is no justification to hold that rules of
natural justice have been ousted by necessary implication on account of the
time frame. On the other hand, the time limited by statute provides scope for
an opportunity to be extended to the intended excluded employees before the
scheme is finalised so that a hearing commensurate to the situation is afforded
before a section of the employees is thrown out of employment. [207F-G]
5.3
There is no justification to think of a post- decisional hearing. H 192 on the
other hand, the normal rule should apply. The excluded employees have already
been thrown out of employment and having been deprived of livelihood they must
be facing serious difficulties. There is no justification to throw them out of
employment and then given them an opportunity of representation when the
requirement is that they should have the opportunity as a condition precedent
to action. It is common experience that once a decision has been taken, there
is a tendency to uphold it and a representation may not really yield any
fruitful purpose. [208A-C]
6.
Protection of the umbrella of conclusive evidence is not attached to a
situation as in the instant case, so as to bar the question regarding the
requirements of the procedure laid down under the Act and the opportunity
afforded to the excluded employees from being examined. There is, therefore,
nothing in sub-section (7A) of section 45 to preclude examination of the
question. [208G] [Each of the three transferee banks should take over the excluded
employees on the same terms and conditions of employment under the respective
banking companies prior to amalgamation. The employees would be entitled to the
benefit of continuity of service for all purposes including salary and perks
throughout the period. It is open to the transferee banks to take such action
as they consider proper against these employees in accordance with law. There
is no justification to penalise some of the excluded employees who have not
come to the Court. They too shall be entitled to the same benefits as the
petitioners.] [208H; 209A-B] Union of India & Anr. v. Cynamide India Ltd.
& Anr., [1987] 2 SCC 720; Perre Brothers v. Citrus organisation Committee,
[1975] 10 SASR 555; Re (H) K (an infant), [1967] 1 AER 226; State of Orissa v.
Dr. (Miss) Binapani Dei & Ors., [1967] 2 SCR 625; A.K Kraipak & ors.,
v. Union of India & Ors., [1970] 1 SCR 457; Chandra Bhavan Boarding and
Lodging, Bangalore v. The State of Mysore & Anr., 11970] 2 SCR 600;
Swadeshi Cotton Mills v. Union of India, [1981] 2 SCR 533 and Smt. Somavanti
& Ors. v. State of Punjab & Ors., [1963] 2 SCR 774, referred to.
Original
Jurisdiction:
Writ Petition No. 177 of 1987 etc. etc.
(Under
Article 32 of the Constitution of India).
Dr.
L.M. Singhvi, K.K. Venugopal, M.K. Ramamurthi, V.M. 193 Tarkunde, R.K. Garg,
Ravi P. Wadhwani, Vrinda Grover, Vandana Chak, Ranjeet Kumar, M.N. Krishnamani,
V. Shekhar, B.S. Maan, M.A. Chinnaswami, V.J. Francis, Mathai M. Paikeday, N.M.
Popli, M.A. Krishnamurthi, Mrs. Chandan Ramamurthi, Balbir Singh, Rajan
Karanjawala, Mrs. Manik Karanjawala, Ravi P. Wadhwani, P.N. Mishra, Ashok
Grover, Ezaz Manbool, and K.K. Mohan for the Petitioners. G. Ramasvamy,
Additional Solicitor General, Dr. Y.S. Chitale, M.M. Abdul Khader, Soli J.
Sorbjee, K.N. Bhat, G.L. Sanghi, O.C. Mathur, Miss Srieen Sethna, Harish Salve,
H.S. Parihar, Vipin Chandra, Vijay Kr. Verma, Miss Madhu Moolchandani, Gopal
Subramium, Halida Khatoon, Mrs. Sushma Suri and P. Parmeshwaran for the
Respondents.
E.C.
Aggarwala and D.D. Gupta for the Intervener.
The
Judgment of the Court was delivered by RANGANATH MISRA, J. The writ petitions
under Article 32 of the Constitution and appeals by special leave are against
the judgment of the Division Bench of the Kerala High Court in writ appeals
have a common set of facts as also law for consideration. These matters have
been heard together and are disposed of by this common judgment.
Hindustan
Commercial Bank ('Hindustan' for short).
The
Bank of Cochin Ltd. (hereafter referred to as 'Cochin Bank') and Lakshmi
Commercial Bank ('Lakshmi' for short) were private banks. Action was initiated
under section 45 of the Banking Regulation Act, 1949 ('Act' for short) for
amalgamation of these three banks with Punjab National Bank, Canara Bank and
State Bank of India respectively in terms of separate schemes drawn under that
provision of the Act.
Amalgamation
has been made. Pursuant to the schemes, 28 employees of Hindustan, 21 employees
of Cochin Bank and 76 employees of Lakshmi were excluded from employment and
their services were not taken over by the respective transferee banks. Some of
these excluded employees of the Cochin Bank went before the Kerala High Court
for relief under Article 226 of the Constitution. A learned Single Judge gave
them partial relief but on an appeal to the Division Bench by the transferee
bank concerned the writ petitions have been dismissed. The civil appeals are
against the decision of the Division Bench. The writ petitions directly filed
before this Court are by some of the excluded employees of Hindustan and
Lakshmi respectively.
194
Though employees of the other two banks had not challenged the vires of section
45 of the Act, on behalf of Lakshmi such a challenge has been made. Since the
grounds of attack on this score did not impress us at all, we do not propose to
refer to that aspect of the submissions involving interpretation of Article
31-A, Article 16 and Article 21.
It
has often been said by this Court that Courts should not enter into
constitutional issues and attempt interpretation of its provisions unless it is
really necessary for disposal of the dispute. In our opinion, this group of
cases can be disposed of without reference to question of vires of some part of
section 45 of the Act being examined. Counsel on behalf of the excluded
employees have broadly contended that the draft schemes did not include any
name of employees intended to be excluded; no opportunity of being heard was
afforded to them before exclusion was ordered under the schemes and the authorities
concerned have not acted fairly;
they
deny the allegation that any of them was responsible for ficticious, improper
or non-business like advances of loan to parties thereby bringing conditions
near about bankruptcy for the appropriate banking companies; many other
employees against whom there were definite charges already pending enquiry or
even orders of dismissal had been proposed have been taken over and retained in
service of the transferee banks while these excluded employees without
justification have been called upon to face this unfortunate situation.
The
transferee banks, the Reserve Bank of India (hereafter referred to as RBI for
short) and the Union of India have appeared and filed affidavits in opposition.
The Union of India has contended that the scheme in respect of each of the
banks that has got amalgamated had been approved by it as required under the
Act and since finality was attached to such schemes challenge was not open
against the schemes particularly in view of the provisions contained in Article
3 I-A of the Constitution. On behalf of the Reserve Bank of India, several
contentions were raised by way of opposition and shortly stated these
submissions are:- (1) Law does not require that the draft scheme should contain
the names of the employees to be excluded;
(2)
The incorporation of the names finalised on the basis of scrutiny of the
records before the schemes were placed before the RBI was sufficient compliance
of the requirements of the law;
195
(3) the provisions of the Act did not confer any right on the employees of
being heard;
(4)
the scheme-making process was legislative in character and therefore did not
come within the ambit of natural justice. Alternately the action not being
judicial or quasi-judicial and at the most being administrative or executive
was also not open to challenge on allegations of violation of rules of natural
justice;
(5)
moratorium under the statutory provisions could not be beyond six months and in
view of the fact that the entire operation had to be finalised within a brief
time frame, the requirement of an enquiry by notice to all the officers
intended to be excluded could not have been intended to be implanted into the
provisions of section 45; and (6) Provision of compensation has been made for
those who were excluded from the respective scheme.
Each
of the transferee banks generally adopted the stand taken by RBI.
Before
we proceed to examine the tenability of the several contentions and counter
contentions advanced at the hearing, it is appropriate that we refer to the
relevant provisions of the Act. The entire law applicable to the facts of these
cases is to be found in Part Ill of the Act and in particular in section 45. As
far as relevant, that section provides:
"Notwithstanding
anything contained in the foregoing provisions of this Part or in any other law
or any agreement or other instrument, for the time being in force. Where it
appears to the Reserve Bank that there is good reason so to do, the Reserve
Bank may apply to the Central Government for an order of moratorium in respect
of a banking company.
(2)
The Central Government, after considering the application made by the Reserve
Bank under sub-section (1), may make an order of moratorium staying the
commencement or continuance of all actions and proceedings against the company
for a fixed period of time on such terms and conditions as it thinks fit and
proper and may 196 from time to time extend the period so however that the
total period of moratorium shall not exceed six months;
(3)
..................... ...................
(4)
During the period of moratorium, if the Reserve Bank is satisfied that- (a) in
the public interest; or (b) in the interests of the depositors; or (c) in order
to secure the proper management of the banking company; or (d) in the interests
of the banking system of the country as a whole,-it is necessary so to do, the
Reserve Bank may prepare a scheme- (i) for the reconstruction of the banking
company, or (ii) for the amalgamation of the banking company with any other
banking institution (in this section referred to as "the transferee
bank").
(5)
The scheme aforesaid may contain provisions for all or any of the following
matters, namely:- (a)...............................................
(b)...............................................
(c)...............................................
(d)...............................................
(e)...............................................
(f)...............................................
(g)...............................................
(h)...............................................
197
(i) the continuance of the services of all the employees of the banking company
(excepting such of them as not being workmen within the meaning of the
Industrial Disputes Act, 1947 are specifically mentioned in the scheme) in the
banking company itself on its reconstruction or, as the case may be, in the
transferee bank at the same remuneration and on the same terms and conditions
of service, which they were getting or, as the case may be, by which they were
being governed, immediately before the date of the order of moratorium:
Provided.........................................
(j)
notwithstanding anything contained in clause (i) where any of the employees of
the banking company not being workmen within the meaning of the Industrial
Disputes Act, 1947 are specifically mentioned in the scheme under clause (i),
or where any employees of the banking company have by notice in writing given
to the banking company or, as the case may be, the transferee bank at any time
before the expiry of one month next following the date on which the scheme is
sanctioned by the Central Government, intimated their intention of not becoming
employees of the banking company on its reconstruction or, as the case may be,
of the transferee bank, the payment to such employees of compensation, if any,
to which they are entitled under the Industrial Disputes Act, 1947, and such
pension, gratuity, provident fund and other retirement benefits ordinarily
admissible to them under the rules or authorisations of the banking company
immediately before the date of the order of moratorium:
(k)...............................................
(I)
..............................................
(6)
(a) A copy of the scheme prepared by the Reserve Bank shall be sent in draft to
the banking company and also to the transferee bank and any other banking
company concerned in the amalgamation, for suggestions and objections, if any,
within such period as the Reserve Bank may specify for this purpose;
(b)
the Reserve Bank may make such modifications, 198 if any, in the draft scheme
as it may consider necessary in the light of the suggestions and objections
received from the banking company and also from the transferee bank, and any
other banking company concerned in the amalgamation and from any members,
depositors or other creditors of each of those companies and the transferee
bank.
(7)
The scheme shall thereafter be placed before the Central Government for its
sanction and the Centraly Government may sanction the scheme without any
modifications or with such modifications as it may consider necessary; and the
scheme as sanctioned by the Central Government may specify in this behalf:
Provided
.........................................
(7A)
The sanction accorded by the Central Government under sub-section (7), whether
before or after the commencement of section 21 of the Banking Laws
(Miscellaneous Provisions) Act, 1963, shall be conclusive evidence that all the
requirements of this section relating to reconstruction, or, as the case may
be, amalgamation have been com plied with and a copy of the sanctioned scheme
certified in writing by an officer of the Central Government to be a true copy
thereof, shall, in all legal proceedings (whether in appeal or otherwise and
whether instituted before or after the commencement of the said section 21), be
admitted as evidence to the same extent as the original scheme.
(8)
on and from the date of the coming into operation of the scheme or any
provision thereof, the scheme or such provision shall be binding on the banking
company or, as the case may be, on the transferee bank and any other banking
company concerned in the amalgamation and also on all the members, depositors
and other creditors and employees of each of those companies and of the
transferee bank, and on any other person having any right or liability in
relation to any of those companies or the transferee bank.............
(9)...............................................
(10)
If any difficulty arises in giving effect to the provisions 199 of the scheme,
the Central Government may by order do anything not inconsistent with such
provisions which appear to it necessary or expedient for the purpose of
removing the difficulty.
(11)
Copies of the scheme or of any order made under sub-section ( 10) shall be laid
before both Houses of Parliament, as soon as may be, after the scheme has been
sanctioned by the Central Government or, as the case may be, the order has been
made.
(12)..............................................
(13)..............................................
(14)..............................................
(15)..............................................
Allegations
advanced on behalf of the excluded employees is that the draft scheme
contemplated under sub-section 6(a) did not specifically mention names of the
excluded employees and at a later stage when the scheme was sent up by the RBI
to the Central Government a schedule containing the names of the excluded
employees was attached to each of the schemes.
Section
45 of the Act provides a legislative scheme and the different steps required to
be taken under this section have been put one after the other. A reading of
this section indicates a sequence oriented pattern. What would ordinarily be
incorporated in the draft scheme is indicated in sub- section (5). After the
requirements of sub-section (5) are complied with and the scheme comes to a
presentable shape, sub-section (6)(a) requires a copy thereof as prepared by
RBI to be sent to the banking company (transferer) as also to the transferer
bank. Clause (b) of sub-section (6) authorises RBI to make modifications in the
draft scheme as it may consider necessary in the light of suggestions and
objections received from the banking company and the transferee bank. On a
simple construction of sub-sections (5) and (6) and on the basis of the
sequence pattern adopted in section 45 it would be legitimate to hold that the
Act contemplates the employees to be excluded to be specifically named in the
draft scheme. Since it is a draft scheme prepared by RBI and the right to
object or to make suggestions is extended to both the banking company as also
the transferee bank, and in view of the fact that clause 200 (i) of sub-section
(5) specifies this item to be a matter which may be included in the scheme, it
must follow that the legislative intention is that the scheme would incorporate
the names of such employees as are intended to be excluded in accordance with
the scheme. Once it is incorporated in the scheme the banking company as also
the transferee bank would be entitled to suggest/object to the inclusion of
names of employees. It may be that the names of some of the employees may have
been wrongly included and the banking company-the hither-to employer would be
in a position to suggest/object to the inclusion of the names or it may even be
that names of some undesirable employees which should have been left out have
been omitted and the banking company as the extant employer of such employees
would be most competent to deal with such a situation to bring about
rectifications by exercising the power to suggest/object to the draft scheme.
The contention advanced on behalf of RBI that since it is open to it under
sub-section (6)(b) of section 45 to make modifications of the draft scheme,
even if the names were not included earlier, at the stage of finalising the
scheme for placing it before the Central Government as required under
sub-section (7), the earlier non-inclusion is not a contravention is not
acceptable. We are of the view that in case some employees of the banking
company are intended to be excluded, their names have to be specifically
mentioned in the scheme at the draft stage. The requirement of specific mention
is significant and the legislature must be taken to have intended compliance of
the requirement at that stage. Mr. Salve for the RBI adopted the stand that the
provisions of section 45 did not specifically concede a right of objection or
making of suggestions to employees and in sub-section (6)(b) mention was made
only of members, depositors or other creditors. For the reasons we have
indicated above, this aspect of the contention does not impress us.
It
is the common case of RBI as also the transferee banks that the records of
service of each of the employees had been scrutinised and the names for
inclusion in the scheme were picked up on the basis of materials like
irresponsible action in regard to sanction of loans and accommodations to
customers which affected the financial stability of the banking company
concerned. Such an allegation made in the counter-affidavit in this Court has
been seriously disputed by the litigating excluded employees. It is their
positive case that there was no foundation in such allegation and dubious
loans, if any, had been sanctioned under instructions of the superior in the
banking company and, therefore, did not involve any delinquency on the part of
such employees. Since it is the case of the respondents that exclusion had 201
been ordered on the basis of an objective assessment and the very A foundation
of the allegation upon which such assessment has been made is disputed, a
situation arose where facts had to be ascertained, and it involved assessment.
That has admittedly not been done.
These
employees were in employment under contract in the banking companies which were
private banks. They have been excluded from service under the transferee banks
and the contracts have now been terminated as a result of inclusion of their
names in the schemes. It cannot be disputed-nay has not been-that exclusion has
adversely affected this category of employees and has brought about prejudice
and adverse civil consequences to them. Two contentions have been raised with
reference to this aspect of the matter:-,, (1) There has been infraction of
natural justice and (2) The transferee banks which are 'State' and RBI which
has monitored the operation being admittedly 'State' their action in excluding
some of the employees of the banking company and taking over the services of
others who are similarly situated is hit by Article 14 of the Constitution. It
may be pointed out that according to the excluded employees, many facing
similar allegations and/or in worse situation have been taken over.
Whether
there is infraction of Article 14 of the Constitution on the allegation
advanced would depend upon facts relating to the excluded employees as also the
allegedly derelict employees whose services have been taken over. In the
absence of an enquiry in which the excluded employees should have been given an
opportunity of participation it has become difficult for us to probe into the
matter further. F Admittedly the excluded employees have neither been put to
notice that their services were not being continued under the transferee banks
nor had they been given an opportunity of being heard with reference to the
allegations now levelled against them. Learned counsel for RBI and the
transferee banks have taken the stand that the scheme-making process under
section 45 is legislative in character and, therefore, outside the purview of
the ambit of natural justice under the protective umbrella whereof the need to
put the excluded employees to notice or enquiry arose. It is well-settled that
natural justice will not be employed in the exercise of legislative power and
Mr. Salve has rightly relied upon a recent decision of this Court being Union
of India H 202 & Anr. v. Cynamide India Ltd. & Anr., [ 1987] 2 SCC 720
in support of such a position. But is the scheme-making process legislative?
Power has been conferred on the RBI in certain situations to take steps for
applying to the Central Government for an order of moratorium and during the
period of moratorium to propose either reconstruction or amalgamation of the
banking company. A scheme for the purposes contemplated has to be framed by RBI
and placed before the Central Government for sanction. Power has been vested in
the Central Government in terms of what is ordinarily known as a Henery-8
clause for making orders for removal of difficulties. Section 45(11) requires
that copies of the schemes as also such orders made by the Central Government
are to be placed before both Houses of Parliament. We do not think this
requirement makes the exercise in regard to schemes a legislative process. It
is not necessary to go to any other authority as the very decision relied upon
by Mr. Salve in the case of Cynamide India Ltd. (supra) lays down the test. In
paragraph 7 of the judgment it has been indicated:- "Any attempt to draw a
distinct line between legislative and administrative functions, it has been
said, is 'difficult in theory and impossible in practice'. Though difficult, it
is necessary that the line must sometimes be drawn as different legal rights
and consequences may ensue. The distinction between the two has usually been
expressed as 'one between the general and the particular'. 'A legislative act
is the creation and promulgation of a general rule of conduct without reference
to particular cases; an administrative act is the making and issue of a
specific direction or the application of a general rule to a particular case in
accordance with the requirements of policy'. 'Legislation is the process of
formulating a general rule of conduct without reference to particular cases and
usually operating in future; administration is the process of performing
particular acts, of issuing particular orders or of making decisions which
apply general rules to particular cases'. It has also been said:
"Rule-making is normally directed towards the formulation of requirements
having a general application to all members of a broadly identifiable
class" while, "an adjudication, on the other hand, applies to
specific individuals or situations. But this is only a broad distinction, not
necessarily always true." Applying these tests it is difficult to accept
Mr. Salve's contention that 203 the framing of the scheme under section 45
involves a legislative process. There are similar statutory provisions which
require placing of material before the two Houses of Parliament yet not
involving any legislative activity. The fact that orders made by the Central
Government for removing difficulties as contemplated under sub-clause (10) are
also to be placed before the two Houses of Parliament makes it abundantly clear
that the placing of the scheme before the two Houses is not a relevant test for
making the scheme framing process legislative. We accordingly hold that there
is no force in the contention of Mr. Salve that the process being legislative,
rules of natural justice were not applicable.
The
alternate contention on this score is that the scheme-making process being an
executive activity or alternately an administrative matter, rules of natural
justice have no application. This contention has again to be rejected. Neither
in "Privy Council, Natural Justice and Certiorari" has indicated:-
"Formerly the presumption had been that there WAS obligation to give a
hearing unless the statute itself indicated such an obligation; now the
presumption is that there is such an obligation unless the statute clearly
excludes it, notwithstanding the vesting of a power, in subjective terms, in a
minister responsible to Parliament." As has beer. pointed out by Wells J.
in Perre Brothers v. Citrus organisation Committee, [1975] 10 SASR 555:-
"It is now well established-and there is no need for me to canvass the
innumerable authorities bearing on this point-that duties, responsibilities and
functions of an administrative authority may be purely ministerial, or they may
embody some quasi or semi-judicial characteristic.
At
one time a good deal of ingenuity-and with all respect it seems to me a great
deal of energy- was wasted in attempting to discern whether a particular
function was administrative or quasi- judicial. In my view the House of Lords,
and now the High Court, have, to a very large extent set all such controversies
at rest.
In
my opinion, the test now is not so much as to whether one can fairly call
something "ministerial" or 204 "administrative", or
"quasi-judicial" but whether the duties of a non-judicial authority
must, having regard to the wording of the Act, be carried out in a spirit of
judicial fairness. " In Re (H) K (an infant), [1967] 1 AER 226 Lord
Parker, CJ, found that the immigration officer was not acting in a judicial or
quasi-judicial capacity. Yet, the learned Chief Justice held that he still had
to act fairly. In that case it meant giving K an opportunity of satisfying the
officer as to his age, and for that purpose he had to let K know what his immediate
impression was so that K could disabuse him of it. Lord Parker observed:-
"I appreciate that in saying that, it may be said that one is going
further than is permitted on the decided cases because heretofore at any rate
the decisions of the courts do seem to have drawn a strict line in these
matters according to whether there is or is not a duty to act judicially or
quasi-judicially".
The
obligation to act fairly even in administrative decision making has since been
widely followed.
Mulla
in 'Fairness: The New Natural Justice' has stated:- "Natural justice
co-exists with, or reflected, a wider principle of fairness in decision-making
and that all judicial and administrative decision-making and that all judicial
and administrative decision-makers had a duty to act fairly. " In the case
of State of Horsily v. Dr. (Miss) Binapani Dei & ors., [ 1967] 2 SCR 625
this Court observed:- "It is true that the order is administrative in
character but even an administrative order which involves civil consequences as
already stated, must be made consistently with the rules of natural justice
after informing the first respondent of the case of the State, the evidence in
support thereof and after giving an opportunity to the first respondent of
being heard and meeting or explaining the evidence. No such steps were
admittedly taken; the High Court was, in our judgment, right in setting aside
the order of the State." 205 in A.K Kraipak & ors. v. Union of India
& ors., [ 1970] 1 SCR 457 a Constitution Bench quoted with approval the
observations of Lord Parker in Re: (H) K (an infant) (supra). Hegde, J.
speaking for the Court stated:
"Very
soon thereafter a third rule was envisaged and that is that quasi-judicial
enquiries must be held in good faith, without bias and not arbitrarily or
unreasonablly. But in the course of years many more subsidiary rules came to be
added to the rules of natural justice. Till very recently it was the opinion of
the courts that unless the authority concerned was required by the law under
which it functioned to act judicially there was no room for the application of
the rules of natural justice. The validity of that limitation is now
questioned. If the purpose of the rules of natural justice is to prevent
miscarriage of justice one fails to see why those rules should be made
inapplicable to administrative enquiries. Often times it is not easy to draw
the line that demarcates administrative enquiries from quasi-judicial
enquiries. Enquiries which were considered administrative at one time are now being
considered as quasi-judicial in character.
Arriving
at a just decision is the aim of both quasi-judicial enquiries as well as
administrative enquiries. An unjust decision in an administrative enquiry may
have more far reaching effect than a decision in a quasi-judicial
enquiry." These observations in A.K. Kopak's (supra) case were followed by
another Constitution Bench of this Court in Chandra Bhavan Boarding and
Lodging, Bangalore v. The State of Mysore & Anr., l 19701 2 SCR 600. In
Swadeshi Cotton Mills v. Union of India, [1981] 2 SCR 533 a three-Judge Bench
of this Court examined this aspect of natural justice.
Sarkaria,
J. who spoke for the Court, stated:- "During the last two decades, the
concept of natural justice has made great strides in the realm of
administrative law. Before the epoch- making decision of the House of Lords in
Ridge v. Baldwin, it was generally thought that the rules of natural justice
apply only to judicial or quasi-judicial proceedings; and for the purpose,
whenever a breach of the rule of natural justice was alleged, Courts in England
used to ascertain whether the impugned action was taken by the statutory
authority or tribunal in the exercise of its 206 administrative or
quasi-judicial power. In India also, this was the position before the decision
of this Court in Dr. Bina Pani Dei's case (supra);
wherein
it was held that even an administrative order or decision in matters involving
civil consequences, has to be made consistently with the rules of natural
justice. This supposed distinction between quasi-judicial and administrative
decisions, which was perceptibly mitigated in Bina Pani Dei's case (supra) was
further rubbed out to a vanishing point in A.K. Kraipak's case (supra)
.........................
".
On
the basis of these authorities it must be held that even when a State agency
acts administratively, rules of natural justice would apply. As stated, natural
justice generally requires that persons liable to be directly affected by
proposed administrative acts, decisions or proceedings be given adequate notice
of what is proposed so that they may be in a position (a) to make
representations on their own behalf; (b) or to appear at a hearing or-enquiry
(if one is held); and (c) effectively to prepare their own case and to answer
the case (if any) they have to meet.
Natural
justice has various facets and acting fairly is one of them. RBI which
monitored the three amalgamations was required to act fairly in the facts of
the case. The situation necessitated a participatory enquiry in regard to the
excluded employees. Since the decision to exclude them from service under the
transferee banks is grounded upon a set of facts the correctness whereof they
deny, if an opportunity to know the allegations and to have their say had been
afforded, they could have no grievance on this score. The action deprives them
of their livelihood and brings adverse civil consequences and could obviously
not be taken on the ipse dixit of RBI officers without verification of facts.
It is quite possible that a manoeuvring officer of the banking company
adversely disposed of towards a particular employee of such bank could make a
report against such employee and have him excluded from further service under
the transferee bank. The possibility of exclusion on the basis of some mistake
such as to identity cannot also be ruled out. There is all the more
apprehension of this type is the process has to be completed quickly and very
often the records of a large number of employees have to be scrutinised. We are
of the view that rules of natural justice apply to administrative action and in
the instant cases the decision to exclude a section of the employees without
complying with requirements of natural justice was bad.
207
It has been contended on behalf of respondents that moratorium could be for a
total period of six months and that was the time allowed for the entire
operation to be conducted. In view of the time frame, by necessary implication
it must follow that application of natural justice compliance of which would
involve a time-consuming process was ruled out. We do not think that there is
any merit in this contention either. As a fact, in respect of the three banks
the total number of excluded employees is around 125. It is the common case of
parties that proceedings were pending against some of them. It may be that in
view of the time frame a detailed enquiry involving communication of
allegations, show cause, opportunity to lead evidence in support of the
allegations and in defence of the stand of the employees may not be possible.
Keeping the legislative scheme in view perhaps a simpler enquiry, for instance,
communication of the allegation and even receiving an explanation and in cases
where the allegation was serious or there was a total denial though there was
firm basis for the allegation a single personal hearing could be afforded. In
this case we are not really concerned with the manner or extent of hearing as
there has been no hearing at all. It must, therefore, be held that the action
of excluding these employees in the manner done cannot be supported.
Fair
play is a part of the public policy and is a guarantee for justice to citizens.
In our system of Rule of Law every social agency conferred with power is
required to act fairly so that social action would be just and there would be
furtherance of the well-being of citizens. The rules of natural justice have
developed with the growth of civilisation and the content thereof is often
considered as a proper measure of the level of civilisation and Rule of Law
prevailing in the community. Man within the social frame has struggled for
centuries to bring into the community the concept of fairness and it has taken
scores of years for the rules of natural justice to conceptually enter into the
field of social activities. We do not think in the facts of the case there is
any justification to hold that rules of natural justice have been ousted by
necessary implication on account of the time frame. On the other hand we are of
the view that the time limited by statute provides scope for an opportunity to
be extended to the intended excluded employees before the scheme is finalised
so that a hearing commensurate to the situation is afforded before a section of
the employees is thrown out of employment.
We
may now point out that the learned Single Judge of the Kerala High Court had
proposed a post-amalgamation hearing to meet the situation but that has been
vacated by the Division Bench. For the 208 reasons we have indicated, there is
no justification to think of a post-decisional heading. On the other hand the
normal rule should apply. It was also contended on behalf of the respondents
that the excluded employees could now represent and their cases could be
examined. We do not think that would meet the ends of justice. They have
already been thrown out of employment and having been deprived of livelihood
they must be facing serious difficulties. There is no justification to throw
them out of employment and then given them an opportunity of representation when
the requirement is that they should have the opportunity referred to above as a
condition precedent to action. It is common experience that once a decision has
been taken, there is a tendency to uphold it and a representation may not
really yield any fruitful purpose.
'Amalgamation'
as such saved under Article 31A(1)(c) of the Constitution is not under
challenge here. Strong reliance, however, had been placed on the provisions of
sub- section (7A) of section 45 of the Act. The relevant part of it is as requoted
here for convenience:- "The sanction accorded by the Central Government
under sub-section (7) .. shall be conclusive evidence that all the requirements
of this section relating to ............ amalgamation have been complied-with
This provision is indeed one for purposes of evidence.
In
Smt. Somavanti & ors. v. State of Punjab & Ors., [19631 2 SCR 774 this
Court pointed out that there was no real difference between 'conclusive proof'
provided for in section 4 of the Evidence Act and 'conclusive evidence' as
appearing in sub-section (7A). This provision does not bar the raising of a
dispute of the nature received here. As we have already pointed out,
amalgamation is not under challenge. Parties are disputing as to what exactly
are the requirements of the procedure laid down under the Act and the position
that no opportunity was afforded to the excluded employees is not in dispute.
To a situation as here protection of the umbrella of conclusive evidence is not
attached so as to bar the question from being examined.
There
is, therefore, nothing in sub-section (7A) to preclude examination of the
question canvassed here The writ petitions and the appeals must succeed. We set
aside the impugned judgments of the Single Judge and Division Bench of the
Kerala High Court and direct that each of the three transferee banks 209 should
take over the excluded employees on the same terms and conditions of employment
under the respective banking companies prior to moratorium. The employee would
be entitled to the benefit of continuity of service for all purposes including
salary and perks throughout the period.
We
leave it open to the transferee banks to take such action as they consider
proper against these employees in accordance with law. Some of the excluded
employees have not come to Court. There is no justification to penalise them
for not having litigated. They too shall be entitled to the same benefits as
the petitioners. Ordinarily the successful parties should have been entitled to
costs but in view of the fact that they are going back to employment, we do not
propose to make orders of costs against their employers. We hope and trust that
the transferee banks would look at the matter with an open mind and would keep
themselves alive to the human problem involved in it.
N.P.V.
Petitions & Appeals allowed.
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