M/S Goa
Shipyard Ltd. Vs. Babu Thomas [2007] Insc 671 (30 May 2007)
H.K. SEMA & R.V. RAVEENDRAN
H.K.SEMA,J.
The challenge in this appeal is to the order of 25th November, 2003 passed
by the Division Bench of the High Court of Bombay at Goa in Civil Writ Petition
No. 414 of 1997 whereby the order of dismissal of the respondent dated
21.1.1997 dismissing him from service passed by the Chairman and Managing
Director and also the order of the Appellate Authority (Board) of 27.9.1997
confirming the order of dismissal were set aside. This appeal is preferred by
M/s Goa Shipyard Ltd.
Few facts may be noted.
2. The respondent was appointed by Chairman and Managing Director as Joint
Manager (Security) by an order dated 18.1.1991. On 26.8.1991 he was given
additional charge as officiating Manager-Personnel and Administration.
It is stated that on 14.9.1994 the respondent was caught red handed by
C.I.D./Crime Branch of Goa Police while demanding illegal gratification of
Rs.20,000/- from one Shri Chennaiah, a cleaning labour contractor employed by
the appellant. He was placed under suspension by an order dated 15.9.1994 in
contemplation of the disciplinary proceedings. On 15.12.1994, 13 counts of
charges were levelled against the respondent namely (i) demanding and collecting
illegal gratification, (ii) accepting bribe of illegal gratification for
recruitment in Petitioner company, (iii) withholding authorised payments for
extorting money or bribe, (iv) financial loss caused to the company by
misleading the Management by intentionally furnishing wrong advice; (v) misuse
of contract employee; (vi) violation of company's policy on recruitment; (vii)
creating of new posts and converting security assistants as Personnel
Administration Assistants without sanction of the appropriate authority; (viii)
attempt to extort money from contractors; (ix) prejudicing the company and its
contractors by influencing a wage agreement; (x)(a) financial irregularities,
improprieties and fraud and non accounting of company's funds; (x)(b) wrongful
appropriation of money from the imprest account of Shri M.R. Furtado; (x)(c)
non-accounting of appropriation of advance drawn by Shri M.R. Furtado; (xi)
possession of pornographic materials; (xii) misuse of company's car; and (xiii)
unauthorized telephone bills of office and residential phones.
3. On 4.1.1995 one Shri N.P. Kumar was appointed as an Inquiry Officer. The
respondent in the interregnum filed Writ Petition No.137 of 1995 before the
High Court of Bombay at Goa challenging the inquiry proceedings on the grounds
that relevant documents were not furnished to him, legal assistance was not
provided and subsistence allowance was not correctly paid. The High Court by
its interim order dated 2.5.1995 granted interim stay of inquiry proceedings. By
another order dated 10.7.1995 the High Court vacated the interim stay and
allowed the disciplinary authority to proceed in accordance with principles of
natural justice and in accordance with law and directed the appellant to
furnish copies of all relevant documents to the respondent. The Writ Petition
was disposed of on 26.7.1995 directing the appellant to complete the
disciplinary proceedings within four months and the respondent was also allowed
to be represented by a lawyer of his choice during the disciplinary
proceedings. In the interregnum Cmdr. S.K.Mutreja was appointed as an Inquiry
Officer in place of Shri N.P. Kumar, who has since resigned.
4. The conduct and discipline of all officers of the appellant were governed
by the Goa Shipyard Officers' Conduct, Discipline and Appeal Rules, 1979 ('CDA
Rules' for short). On 15.12.1995, an amendment to the CDA Rules proposing
substitution of the Schedule to the said Rules, was circulated to the Board of
Directors, vide Circular Board Resolution No.
13 of 1995 for approval by circulation. The purpose of the proposed
amendment was to redesignate the Disciplinary, Appellate and Reviewing
Authorities for imposing minor and major penalties. The said amendment to CDA
Rules were approved by circulation, by the Board of Directors. On 29.3.1996 CMD
issued a Circular notifying all employees, that the amendment to the CDA Rules
were approved and that the amendments came into force with effect from
08.01.1996. The said amendment inter alia substituted the General Manager/Functional
Director as Disciplinary Authority in place of 'Board' and CMD as Appellate
Authority in place of 'Board' for imposing major penalties in the cases of
officers (upto and inclusive of Managers). In regard to grades above Deputy
General Manager, CMD was designated as the Disciplinary Authority and the Board
was the Appellate as well as Reviewing Authority. We extract below the relevant
portion of the Schedule to the CDA Rules before and after amendment:
Before Amendment :
Grade of Officer Appointing Authority Disciplinary Authority Appellate
Authority Reviewing Authority Superintendents to General Manager Board
Reduction to a lower stage in the time scale or to lower grade/ post Other
Major Penalties MD Board Board Board Board Board Note : For the purpose of this
Schedule, 'Board' means a Committee of Directors appointed by the Board of
Directors After amendment :
Grade of Officer Appointing Authority Disciplinary Authority Appellate
Authority Reviewing Authority All Officers up to and inclusive of Manager
Chairman &
Managing Director General Manager/ Functional Director Chairman &
Managing Director Board Note : for the purpose of this Schedule, 'Board'
means a Committee of Directors appointed by the Board of Directors .
5. The Inquiry Officer completed the inquiry and submitted its report on
19.9.1996 holding that the charges No.
(i), (ii), (v), (vi). (vii), (x)(a), (x)(c), (xi), (xii) and (xiii) were
proved against the respondent and charges (iii), (iv), (viii) and (ix) were
withdrawn by the Management and further holding that charge (x)(b) was not
proved. A Show Cause Notice dated 5.10.1996 was issued to the respondent as to
why the Inquiry Report and findings should not be accepted. After examining the
reply dated 31.10.1996 to the show cause notice the respondent was dismissed
from service by an order dated 21.01.1997 passed by the Chairman-cum-Managing
Director.
The respondent's appeal before the Appellate Authority (Board) was rejected
by an order dated 27.09.1997. The Appellate Authority, however, held that
charges no.(ii), (v), (x)(a), (x)(b), (xi) and (xiii) were not fully or
entirely proved and confirmed the dismissal on charges (i), (vi), (vii), (x)(c)
and (xii).
6. Aggrieved thereby the respondent preferred Writ Petition No. 414 of 1997
before the High Court of Bombay at Goa.
Many contentions were raised before the High Court.
However, the High Court disposed of the Writ Petition on a preliminary
contention. It held that amendment to CDA Rules by Board Resolution circulated
on 15.12.1995 and notified on 29.3.1996 did not come into force at all, even
though the circular dated 29.3.1996 under which the amendment was notified
stated that the amendments will come into force with effect from 8.1.1996. The
High Court held that Rule 41 of CDA Rules provided that any amendment will take
effect from the date stated therein and therefore, the date of coming into
effect should be contained in the amendment itself and not in a circular
notifying the amendment. The High Court held that the amendment approved vide
board resolution notified on 29.3.1996 did not mention the date from which the
amendment would be effective and therefore the amendment did not come into
effect. The High Court held that as per the CDA Rules (unamended), the Board was
the Disciplinary Authority and therefore the dismissal order by a lower
authority namely CMD was without authority. On this ground alone, the order of
dismissal passed by the CMD on 21.1.1997 and the Appellate Authority's order
dated 27.9.1997 rejecting the appeal were set aside by the High Court by the
impugned order. The said order is challenged in this appeal by special leave.
7. We have heard Mr. Surendra Desai, learned senior counsel for the
appellant and Mr. L. Nageswara Rao, learned senior counsel for the respondent
at length.
8. The whole controversy revolves around the enforcement and effective date
of the Amended CDA Rules as provided under Rule 41 of CDA Rules, relating to
amendment of Rules.
It reads:
"Amendment:
The Board may amend, modify or add to these rules, from time to time, and
all such amendments, modifications or additions shall take effect from the date
stated herein."
(emphasis supplied) The High Court was of the view that since the date of
enforcement of amended Rules were not stated in the amendment Rules as provided
under Rule 41, it cannot be said that the amendment to the CDA Rules came into
force from 08.01.1996. The High Court held :
"The question, however, is whether the Rules could be said to have been
amended and come into force. As already noted earlier, Rule 41 specifically and
expressly provides for amendment in the Rules. Under the said provision, the
Board could amend, modify or add the Rules, but such amendment would take
effect "from the date stated therein". In other words, the Rules
would get amended and such amendment would be effective from the date mentioned
in such amendment. So far as the amendment is concerned, nothing is stated in
the amendment. Exh.R-4 recites:
"Amendments to Goa Shipyard Officers' Conduct, Discipline and Appeal
Rules, 1979".
It also states that those amendments would come into force from 8th January,
1996. Such a communications (CMD/34/96), in our opinion, however, cannot be
said to be amendment in the Rules covered by Rule 41 of the Rules. Obviously,
therefore, when the amendments were made in the Rules, no provisions had been
made as to when they will come into force and with effect from which date, they
will be implemented. Reliance on Section 289 of the Companies Act, 1956
does not help the respondent. We would have considered the said submission, but
in view of the specific provision in rule 41 of the rules which expressly lays
down the date on which the amendment would come into force, the learned counsel
for the petitioner, in our opinion, is right in contending that the amendment
would not come into operation till the procedure laid down in Rule 41 is
followed and the date is specified. Apart from that, no resolution has also
been placed on record as to when such a decision was taken and as to the date
from which the amendment would become effective. The so-called decision dated
18th March, 1998 produced at the time of hearing is subsequent to the order of
dismissal passed dated 21st January, 1997 and the same cannot salvage the
situation. The order of dismissal passed by the Chairman-cum- Managing
Director, hence deserves to be set aside as also the order passed in Appeal by
the Board. If the initial order is invalid, its invalidity cannot be cured by
ratification, approval or confirmation by any authority (vide State of U.P. v.
Mohd. Nooh, AIR 1958 SC 86;
Farid Ahmed v. Ahmedabad Municipal Corporation, AIR 1976 SC 2095,
Marathawada University v. Sheshrao, AIR 1989 SC 1582).
9. Learned counsel for the appellant contended that the views taken by the
High Court were clearly erroneous in law. He submitted that Resolution by
circulation was recognized and permitted by Section 289 of the Companies Act, which
reads:- "289. Passing of resolutions by circulation.- No resolution shall
be deemed to have been duly passed by the Board or by a committee thereof by
circulation, unless the resolution has been circulated in draft, together with
the necessary papers, if any, to all the directors, or to all the members of
the committee, then in India (not being less in number than the quorum fixed for
a meeting of the Board or committee, as the case may be), and to all other
directors or members at their usual address in India, and has been approved by
such of the directors as are then in India, or by a majority of such of them,
as are entitled to vote on the resolution."
The appellant contends that the draft of the amendment to the CDA Rules was
considered in the meeting of the Board of Directors on 28.9.1995 as item
No.A-15 but the same was deferred. It was again considered at the Board meeting
held on 2.12.1995 as item No.A-10 and it was decided to send the agenda
(containing the draft of the amendment to the CDA Rules) by circulation to
Directors for their approval.
Accordingly the circular resolution was circulated and approved by the six
Directors (Members of Board of Directors) on 15.12.1995, 5.1.1996, 5.1.1996,
8.1.1996, 12.1.1996 and 1.2.1996. As the majority approved it by 8.1.1996, it
was given effect from 8.1.1996. The approved circular Resolution No.13/1995 was
again placed before the Board of Directors on 21-3-1996 for ratification as
item No.A-10 and the Board of Directors duly ratified the Circular Board
Resolution No.13 of 1995 amending the CDA Rules.
10. Counsel for the appellant has also invited our attention to the
resolution of Board of Directors held on 18.3.1998, which further ratified and
classified that the Circular Board Resolution No.13 of 1995 dated 15.12.1995
came into effect on 08.01.1996 on which date the same was approved by the
majority of directors as required under Section 289 of the Act. The said
resolution is extracted below :
"A-11- DISMISSAL OF MAJ. BABU THOMAS JT. MANAGER (S&A) WRIT
PETITION CHALLENGING ORDER OF DISMISSAL IN THE AMENDMENT TO CDA RULES.
37. CMD apprised the Board in the matter and drew the attention of the Board
to Rule 41 of Goa Shipyard Officers' Conduct, Discipline &
Appeal Rules, 1979, which provides and empowers the Board to amend, modify
or add to the said 1979 Rules, from time to time and further provides that all
such amendments, modifications or additions shall take effect from the date
stated therein. The CMD further pointed out that no date had been specified as
required under Rule 41 in the amendments carried out to the said Rules vide
Circular Board Resolution No.13 of 1995 dated 15.12.1995.
38. The Board noted that the Circular Board Resolution No.13 of 1995 was
circulated under Section 289 of the Companies Act, 1956,
in view of urgency to amend the 1979 Rules due to I) changes in grades taken
place since then, ii) on account of administrative difficulties faced in
implementation of the existing Rules, and iii) Government instructions received
by the Company from time to time to amend the Rules, etc. The said amendments
were intended to be enforced immediately and after it were approved as required
under the Companies
Act, 1956. No specific date had been mentioned in the Resolution, since the
said Resolution was intended to take effect from the date the same was approved
as required under Section 289 of the Companies Act, 1956.
The amendment had been brought into force and were being applied from
08.01.1996, on which date the same were approved by the majority of the
Directors as required under Section 289 of the Companies Act, 1956
and on which date, in normal course, any such Resolution under the Companies Act
would have come into force. The Board noted that the aforesaid Circular
Resolution duly signed and approved by the Directors was received by the
Company on various dates from 15.12.1995 and the majority of the Directors had
forwarded the Resolution by 08.01.1996 to the Company. The CMD also drew the
attention of the Board regarding the objections taken by Maj.
Babu Thomas (dismissed employee) in Writ Petition No.414 of 1997, pending
disposal in the High Court of Judicature at Mumbai, Panaji Bench, wherein he
has challenged his dismissal on the ground amongst others, that the amendments
to 1979 Rules have not come into effect since no date is specified in the
amendments resolution.
39. CMD brought out to the notice of the Board that the Board at its meeting
held on 28.11.1997, had noted the report of the Appellate Authority appointed
by the Board confirming the decision of Disciplinary Authority of dismissing
Maj. Babu Thomas from the services of the Company w.e.f. 21.01.1976 for serious
and grave misconduct committed by him under the CDA Rules. After detailed
discussion, the Board, therefore, desired to clarify the position by passing
the following resolution:- "RESOLVED THAT the Circular Board Resolution
No.13 of 1995 dated 15.12.1995 amending the Goa Shipyard Officers' Conduct,
Disciplines and Appeal Rules, 1979 shall take effect from the date the same has
been approved by the majority of the Directors of the Company, in terms of
Section 289 of the Companies Act, 1956".
11. From the facts as adumbrated above it clearly emerges that having regard
to Board's resolution dated 18.3.1998, it should be taken that the amendment of
CDA Rules by Circular Resolution No.13/1995, itself provided that it would take
effect from 8.1.1996 (the date on which the same were approved by the majority
of Directors). Therefore, Rule 41 of the CDA Rules that the amendment will come
into effect from the date stated therein is fully complied with. The question
whether the Board of Directors of a company could subsequently ratify an
invalid act and validate it retrospectively is no more res integra. The
question has been considered by a three Judge Bench of this Court in In that
case the respondent, an employee of the Corporation was dismissed by the
Managing Director preceded by an inquiry. A Writ Petition was filed challenging
the dismissal order on the ground that the Managing Director of the Corporation
was incompetent to pass such order. During the pendency of the Writ Petition,
the Board of Directors of the Corporation passed a Resolution ratifying the
impugned action of the Managing Director and also empowering him to take
decisions in respect of the officers and staff in the grade of pay the maximum
of which did not exceed Rs.4700/- p.m. The Managing Director who dismissed the
employee had earlier the power only in respect of those posts where the maximum
pay did not exceed Rs.1800/- p.m. The employee at the relevant time was drawing
more than Rs.1800/- p.m. and therefore, the Managing Director was incompetent
to dismiss the employee. The High Court set aside the order of termination on
the ground that the invalid act cannot be subsequently ratified by the Board of
Directors. This Court after referring to various earlier decisions set aside
the order of the High Court.
This Court held as under:
"The High Court was right when it held that an act by a legally
incompetent authority is invalid. But it was entirely wrong in holding that
such an invalid act cannot be subsequently 'rectified' by ratification of the
competent authority. Ratification by definition means the making valid of an
act already done. The principle is derived from the Latin maxim 'Ratihabitio
mandato aequiparatur' namely ' a subsequent ratification of an act is
equivalent to a prior authority to perform such act'. Therefore ratification
assumes an invalid act which is retrospectively validated".
xxxxxx "In the present case, the Managing Director's order dismissing
the respondent from the service was admittedly ratified by the Board of
Directors on 20th February 1991, and the Board of Directors unquestionably had
the power to terminate the services of the respondent. On the basis of the
authorities noted, it must follow that since the order of the Managing Director
had been ratified by the Board of Directors such ratification related back to
the date of the order and validated it".
We, therefore, reject the contention that the order of dismissal passed by
CMD is invalid for want of authority.
12. Mr. Rao, learned senior counsel for the respondent, referred to the
decision of this Court in the case of State of Goa vs. Babu Thomas (2005) 8 SCC
130, in which one of us was a Member of the Bench (Sema,J) particularly the
observation made in paragraphs 4,8 and 9 of the judgment. In our view, the
judgment rendered in the aforesaid case relating to sanction for prosecution
under section 19 of Prevention of Corruption Act, 1988 would be of no
assistance to decide the issue on hand.
13. Mr. Rao next referred to the amended CDA rules wherein it has been
provided that for all officers up to and inclusive of Manager, the Disciplinary
Authority who can impose major penalties is the General Manager/Functional
Director and the Appellate Authority is the Chairman &
Managing Director. According to Mr. Rao, since the order of dismissal has
been issued by the Chairman & Managing Director who is an Appellate
Authority, the respondent has been deprived of his right of appeal to the
Chairman &
Managing Director. According to him, under the amended CDA rules the
appellate authority is the Chairman &
Managing Director but as the major penalty has been imposed by the Chairman
& Managing Director, he cannot act as an Appellate Authority and therefore
the respondent has lost one form of remedy available to him. We are unable to
countenance to this submission. The respondent was not denied the right of
appeal. Undisputedly, the respondent filed an appeal before the Board of
Directors, as the order of dismissal was passed by the CMD, and the Board of
Directors considered his appeal and by a detailed order dismissed the appeal on
27.9.1997. In fact, the Board of Directors independently considered the appeal
and while dismissing the appeal held that charges (ii), (v), (x)(a), (x)(b),
(xi) and (xiii) are not fully or entirely proved and confirmed the dismissal
order on charges (i), (vi), (vii), (x)(c) and (xii). The appeal was considered
independently by the Appellate authority and a detailed order passed after
application of mind. In such circumstances, we are clearly of the view that no
prejudice whatsoever has been caused to the respondent as he availed an
opportunity of an appeal before the Board of Directors as an Appellate
Authority.
14. Mr. Rao invited our attention to the decision of this Court rendered in
Surjit Ghosh vs. Chairman & Managing Director (1995) 2 SCC 474, where this
Court observed as under:- "However, when an appeal is provided to the
higher authority concerned against the order of the disciplinary authority or
of a lower authority and the higher authority passes an order of punishment,
the employee concerned is deprived of the remedy of appeal which is a
substantive right given to him by the Rules/Regulations. An employee cannot be
deprived of his substantive right. What is further, when there is a provision
of appeal against the order of the disciplinary authority and when the
appellate or the higher authority against whose order there is no appeal,
exercises the powers of the disciplinary authority in a given case, it results
in discrimination against the employee concerned".
In our view, this decision would be of no help to the respondent's case on
facts. As already noticed in the present case, the respondent in fact, had
availed the remedy of appeal and filed the appeal before the Board of
Directors. That apart, the decision in Surjit Ghosh (supra) has been
distinguished by this Court in Balbir Chand vs. Food Corporation of India Ltd.
(1997) 3 SCC 371. It was pointed out as under:
"The learned Counsel for the petitioner has raised the contention that
since the petitioner was required to be dismissed by the disciplinary
authority, namely, Zonal Manager, who alone is competent to remove him, the
order of dismissal passed by the Managing Director is bad in law. In support
thereof, he placed reliance on a judgment of this Court in Surjit Ghosh v.
Chairman and Managing Director, United Commercial Bank (1995) 2 SCC 474. It is
an admitted position that as a joint enquiry was conducted against all the
delinquent officials, the highest in the hierarchy of competent authority who
could take disciplinary action against the delinquents was none other than the
Managing Director of the Corporation. In normal circumstances the Managing
Director being the appellate authority should not pass the order of punishment
so as to enable the delinquent employee to avail of right of appeal.
It is now a well settled legal position that an authority lower than the
appointing authority cannot take any decision in the matter of disciplinary
action. But there is no prohibition in law that the higher authority should not
take decision or impose the penalty as the primary authority in the matter of
disciplinary action. On that basis, it cannot be said that there will be
discrimination violating Article 14 of the Constitution or causing material
prejudice. In the judgment relied on by the counsel, it would appear that in
the Rules, officer lower in hierarchy was the disciplinary authority but the
appellate authority had passed the order removing the officer from service.
Thereby, the appellate remedy provided under the Rules was denied. In those
circumstances, this Court opined that it caused prejudice to the delinquent as
he would have otherwise availed of the appellate remedy and his right to
consider his case by an appellate authority on question of fact was not
available. But it cannot be laid as a rule of law that in all circumstances the
higher authority should consider and decide the case imposing penalty as a
primary authority under the Rules, In this case, a right of second
appeal/revision also was provided to the Board. In fact, appeal was preferred
to the Board. The Board elaborately considered the matter through the Chairman.
It is not violative of Article 14 of the Constitution".
[Emphasis supplied]
15. The High Court had allowed the respondents' writ petition by upholding
the preliminary contention that the CMD did not have the authority and
jurisdiction to pass the order of dismissal. It did not consider the several
contentions raised by the respondent on merits. In the view that we have taken,
the decision of the High Court dated 25.11.2003 on the preliminary contention cannot
be sustained. We, therefore, set aside the Order of the High Court dated
25.11.2003 which allowed Writ Petition No. 414 of 1997 on a preliminary ground.
Consequently the writ petition shall stand restored to the file of the High
Court. The High Court shall now consider the other contentions raised by the
respondent-writ petitioner other than the issue answered by this Court.
16. This Court on 23.8.2004 stayed the operation of the judgment of the High
Court subject to the appellant making payment of the amount equivalent to
subsistence allowance from the date of the judgment of the High Court within
four weeks. This order was passed keeping in view that the order of dismissal
was set aside by the High Court. As we have set aside the order of the High
Court, the order of dismissal dated 21.1.1997 confirmed by Appellate
Authority's order dated 27.9.1997 stands restored subject to the final decision
of the writ petition. The respondent-writ petitioner shall not be entitled to
any subsistence allowance from today till the writ petition is finally disposed
of by the High Court in accordance with law.
17. The appeal is allowed accordingly. Parties to bear their respective
costs.
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