Holding

The circular is ultra vires the Act and the Scheme and is therefore null and void.

Summary

The All India Bank Officers' Confederation challenged a 23 August 1982 circular that allowed the Central Government to appoint any non‑workmen officer to the board of a nationalised bank, bypassing the panel of three names submitted by the majority association of non‑workmen employees. The petitioners argued that the circular contravened Section 9 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and Clause 3(c) of the Nationalised Banks (Management and Miscellaneous Provisions) Scheme, 1980, which they said required appointment from the association’s panel. The Court examined the legislative intent of the Act and Scheme, emphasizing that employee representation should be democratic and that the government’s discretion is not unfettered. It held that the circular was ultra vires the Act and the Scheme because it undermined the representative character intended for the board. Consequently, the circular was declared null and void and the petitions were allowed.

Issues considered

The circular dated 23 August 1982 is ultra vires Section 9 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970.
Whether Clause 3(c) of the Nationalised Banks (Management and Miscellaneous Provisions) Scheme, 1980, permits the Government to appoint a non‑workmen director without restricting the choice to the panel submitted by the majority association.
Whether the Government’s discretion to appoint directors must be exercised in a manner that ensures democratic representation of employees.
Whether the circular violates constitutional provisions guaranteeing freedom of association (Art. 19(1)(c)) and the directive principle of state policy (Art. 43A).

Legislation cited

Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970s. 9

Subjects

Banking lawNationalised banksAppointment of directorsEmployee representationNon‑workmen directorUltra viresSection 9Constitutional lawTrade unionism

Judgment

A ALL INDIA BANK OFFICERS' CONFEDERATION ~
AND ORS.
v.
UNION OF INDIA & ORS.

AUGUST 14, 1989
B
~
[MURARI MOHON DUTT AND T. KOCHU THOMMEN, JJ.]

Banking Companies (Acquisition and Transfer of undertakings)
Act, 1970: Section 9-0bject of.
-~
Nationalised Banks (Management and Miscellaneous Provisions)
c Scheme, 1980: Clause ]-Nationalised Banks-Board of Directors-
Appointment of Directors-Discretion of Central Government-How J
to be exercised-Appointment of non-workmen Directors-Practice of
appointing persons from out of panel submitted by respective Associa-
tions representing non-workmen employees-Circular discontinuing the
D practice-Validity of

Words and phrases: 'Employees'-Whether includes workmen
and non-workmen.
~-
The Central Govt. in exercise of its power under Section 9 of the
E Banking Companies (Acquisition and Transfer of Undertakings) Act,
1970 enacted the Nationalised Banks (Management and Miscellaneous
Provisions) Scheme, 1980. Clause 3(h) of the said scheme deals with the .
appointment of workmen Directors and it provides that the Central
Govt. shall constitute the Board of a Nationalised Bank consisting of
one Director from among the employees of the nationalised hank, who
F are workmen, to be appointed from out of a panel of 3 such employees
. ....,
furnished to it by the Representative Union. Clause 3(c) of the Scheme
deals with appointment of non-workmen Directors and it provides that
the Central Government shall constitute the Board of a nationalised
bank consisting of one director, from among the employees of the
nationalised bank, who are not workmen, to be appointed after consul-
G talion with the Reserve Bank. The cconsistent practice of the Central
Govt. was to appoint a non-workman Director from out of a penal of 3
names furnished to it by the majority association of non-workmen .
employees. By a circnlar dated 23.8.82, it was clarified that as far as
appointment of non-workmen Director is concerned, there is no justifi-
cation for restricting the choice to the office bearers of the Association.
H This was to enable the Central Govt. to appoint any officer of proven

850
BANK OFFICER CONFEDERATION v. U.0.1. - 851

J. ability and character to the Board of Directors of a nationalised Bank
irrespective of his affiliation with any association. A

The petitioners in these petitions to this Court, challenged this
circular as contrary to the mandate of the Act and the Scheme, and also
contended that clause 3 of the Scheme was ultra vires Section 9 of the
Act. B

Allowing the petitions,

HELD: I. The Circular is ultra vires the Act and the Scheme and
~ it is, therefore, null and void and of no effect. [86IC]

2. The object of the Banking Companies (Acquisition and Trans- c
j fer of undertakings) Act, 1970 is to render the largest good to the
largest nnmber of people. The object of Section 9 of the Act is to
empower the Central Govt. to make a Scheme for the constitution of the
Board of Directors so as to include representatives of the employees i.e.
workmen and non-workmen and other specified categories viz. deposi- D
tors, farmers, workers and artisans. The representatives of these classes
of people are to be either elected or nominated in the mannner specified
by the Scheme. The legislature has left it to the Central Government to
make a scheme providing for appointment to the Board from amongst
the specified categories either by election or by nomination. The discre-
tion as to the mode of appointment is left to the Central Government, E
but it is not an unrestrained or unrestricted discretion, but a discretion
which must be reasonably exercised so as to give effect to the true intent
of the legislature i.e. to give the Board a truly representative character
so as to reflect the genuine interests of the various persons manning or
dealing with the bank as an industry and a commercial enterprise.
What is postulated is such election or nomination as would lend to the F
Board of Directors its truly representative character in consonance and
harmony with the extremely delicate, vital and significant role of the
banking industry in the context of the national policy and objectives and
economic development. The mode of election or nomination must,
therefore, be such as would be ideally suitable and appropriate to the
banking industry. Neither the election nor the nomination should be G
\ conducted in a manner unmindful of the distinctiveness of the banking
) industry. The Central Govt. must in this regard act in consultation with
the Reserve Bank of India which has the necessary expertise and inti-
mate knowledge in the field of banking, finance and other connected
matters. [856F-H; 857 A-B, C-G]
H
852 SUPREME COURT REPORTS [1989] 3 S.C.R.

2.1 But the Central Government has no discretion to avoid elec-
A
tion even where election is appropriate and feasible in respect of a
particular category of persons. For the appointment of representatives of
depositors, farmers, workers other than employees and Artisans, the
discretion is entirely that of the Central Govt. to choose the mode of
representation. On the other hand, in the case of employees, election is
B indeed the most logical, the most appropriate, the most democratic and
certainly the most advantageous form of representation. They are well-
identified, well-organised, well-motivated and interested associates and
participants in the banking industry. They are as such a part of the
bank as the management is. There can be no legitimate management
culture foreign to their vital interests. There can be no valid manage-
ment policy contrary to their genuine needs. The Act does not con-
c template a management unmindful of the true and legitimate interests
of the employees. In a nationalised bank, everyone is as much an
employee as he is an employer. There is no antithesis between the man-
agement and the employees. The distinction that traditionally existed
prior to nationalisation is no longer applicable. The true management
D culture is indeed the culture that represents the various interests of all
persons specified under Section 9 as well as the larger and wider interests
of national economy as postulated in the preamble to the Act. [858B-G)

3. The Central Govt. understood sub-clause (c) of Clause 3
regarding non-workmen employees to warrant the same type of rep-
E resentation as in the case of workmen-employees mentioned under sub-
clause (b) of Clause 3. The field of choice was thus understood by the
Government to be limited to the panel of names furnished by the rep-
resentative Union of workmen or Association of non-workmen as the
case may be. But sub-clause (c) of Clause 3 is vaguely drafted and when
read without regard to the legislative intent, as disclosed by the Act, is
F capable of a contrary interpretation viz. there is no justification for
restricting the choice of non-workmen Directors to the office bearers of
the Association. That interpretation is wrong and, in any case, out of
harmony with the principle enshrined in Articles I9(l)(c) and 43(A) of
the Constitution. [860B-D]

G 4. It is open to the Central Government to amend the Scheme to
improve on the machinery for the conduct of an appropriate election, it
is incumbent upon it, until any such amendment is made, to work the
present Scheme in such a way as to give the maximum scope for the
concerned employees to exercise their choice in the selection of their
representatives. [860H; 86!A]
H
BANK OFFICER CONFEDERATION v. U.0.1. [TIIOMMEN, J.] 853

"·
ORIGINAL JURISDICTION: Transfer Case (Civil) No. 219 of
A
1988.
WITH
C.M.P. No. 8572 of 1989.
(Under Article 139(A)( 1) of the Constitution).
B
AND
TRANSFER PETITION NOS. 376-40 of 1985.
~

.
'i.>-
Ra jinder Sachar anq R. Vasudevan for the Petitioners in Transfer
Case No. 219/88 and C.M.P. No. 8572 of 1989 .

.f M.K. Ramamurthy, D.S. Chauhan, Pinaki Misra, M.A. Krish-
narnoorthy, H.S. Parihar, R.P. Kapoor, O.C. Mathur, Ms. Madhu
c
Khatri, Ms. Bina Gupta, D.N. Misra and Harish N. Salve for the
Respondents in Transfer Case No. 219/88 and C.M.P. 8572 of 1989.
G. Ramaswamy, Additional Solicitor General, Anil Dev Singh
(NP), R.P. Srivastava, Ms. A. Subhashini and C.V.S. Rao for the D
Petitioners in Transfer Petition No. 376-401of1985.

I S.R. Seita and P.K. Manohar for the Respondent in Transfer
'"'\ Petition Nos. 386 and 376 of 1985.

The Judgment of the Court was delivered by E
• TH OMMEN, J. The first petitioner is a registered Central Trade
Union claiming to represent about 85 per cent of the officers working
in the .various nationalised banks. Petitioners 2 to 4 are principal
t office bearers of the first petitioner and are officers of different
nationalised banks. They are aggrieved by Circular dated 23.8.1982 F
(Annexure-A) issued by the Joint Secretary to the Government of
India, Ministry of Finance, Department of Economic Affairs, (Bank-
ing Division), New Delhi. They contend that the circular is contrary to
the mandate of the Banking Companies (Acquisition and Transfer of
Undertakings) Act, 1970 (Act No. 5 of 1970) (hereinafter referred to
I
as the 'Act') and the Nationalised Banks (Management and Miscel- G
t laneous Provisions) Scheme, 1980 (hereinafter referred to as the
'Scheme'). They further contend that Clause 3 of the Scheme in terms
of which the circular is purported to have been issued is ultra vires
Section 9 of the Act unless the said clause is so read as to be in
harmony with the Section, and when so read the said clause does not
justify or support the impugned circular. The petitioners, therefore, H
854 SUPREME COURT REPORTS [1989] 3 S.C.R.

A seek a writ of mandamus to direct the Central Government to appoint
a nominee of the majority association of each of the nationalised banks
as a member of its Board of Directors.

The circular in question reads:

B "As you are aware, in terms of sub-clause (c) of Clause 3 of
Nationalised Banks (Management and Miscellaneous Pro-
visions) Scheme, 1970/1980, one Director from among
the employees of the nationalised banks who arc not
workmen, is to be appointed by the Central Government in
consultation with the Reserve Bank of India on the Board
of each of the Nationalised Banks. Unlike in the case of
c workman, the Scheme does not lay down any procedure for
selection of the non-workman Director. The intention
clearly was that in the case of Officer-Director, Govern-
ment should have ample scope and freedom in selecting
any officer of the Bank to be the non-workman Director.
D However, hitherto panel of names sent by the banks for selec-
tion of the non-workman Director has been confined to
office-bearers of the Association of Officers. Government
has recently reviewed this matter in the light of the relevant
provisions of the Scheme and come to a conclusion that
there is no justification for restricting the choice to the
E office-bearers of the Associations."

The object of the circular is to clarify that the Central Govern-
ment no longer regards itself bound by its earlier practice of appoint-
ing a person from out of the panel of three names submitted by the
respective Association representing the majority of the non-workmen-
F employees of each nationalised bank. The circular makes it clear that
the Government wishes to appoint any officer of proven ability and
character to the Board of Directors of a nationalised bank irrespective
of his affiliation with any Association. The petitioners contend that the
circular is undemocratic and contrary to the letter and spirit of the
Act and the Scheme insofar as it cuts at the root of the representative
G form of selection for appointment to the Board of Directors as contem-
plated by the statute.

The stand of the Central Government and other respondents, as
stated in their counter-affidavits, appears to be that the object of the
circular is to neutralise and discourage trade unionism amongst the
H officers and to keep the directorship above union affiliation, and thus
"

,BANK OFFICER CONFEDERATION v. U.0.J. [TIIOMMEN, J.I 855

encourage the growth of a "management culture". Mr. Rajinder
A
Sachar, supported by Mr. Ramamurthi, contends that there is no
justification whatsoever to issue any such circular for the very object of
the Act is to encourage democratic selection of the Directors who will
truly represent the interests of the various categories of persons
mentioned in the Act. To discourage trade unionism is contrary to the
very spirit of the statute and repugnant to constitutional principles B
enshrined in Article 19(l)(c) and Article 43A of the Constitution of
India.

The Additional Solicitor General, representing the Central
·Government and Mr. Harish N. Salve, counsel for the Reserve Bank
I of India, contend that the Act postulates both election and nomination
} of members of the Board of Directors and the choice between the two · C
modes of appointment is left to the Central Government. The election
or nomination has to· be conducted in a manner as specified in the
Scheme. The Scheme in effect postulates all appointments to be by
nomination. In the case of workmen-employees, the Director is
appointed by the Central Government from amongst the names of D
three employees furnished by the representative Union. Such appoint-
ment, though made out of, and restricted to, the panel furnished by
the Union, is in effect a nomination of the one preferred by the Central
Government. In the case of non-workmen-employees, the choice is
not restricted to any panel and the only condition postulated is consul-
tation with the Reserve Bank of India. Unionisation, though desirable E
among workmen, is not a matter to be encouraged in the case of other
employees for selection to the Board of Directors, for the Directors
must represent the interest of the bank as a whole and not of any
special class of persons. The Additional Solicitor General also submits
that appointment by election is not the only mode of representative
appointment, but nomination is perfectly valid and more effective F
from the point of view of the true institutional interest, particularly
with reference to management efficiency.
!
In the light of these rival contentions, we shall examine the rele-
vant provisions of the Act and the Scheme. Section 9 of the Act
provides: G

"9. Power of Central Government to make scheme-

(1) The Central Government may, after consultation with
the Reserve Bank, make a scheme for carrying out the
provisions of this Act. H
856 SUPREME COURT REPORTS [1989] 3 S.C.R.

A (2) In particular ,and without prejudice to the generalit~· of
the foregoing power, the said scheme may provide for all or
any of the following matters, namely:

(a)

B (b) the constitution of the Board of Directors, by whatever
name called, of the corresponding new bank and all such
matters in connection therewith or incidental thereto as the
Central Government may consider to .be necessary or
expedient;

(c) ................ ..
c
(d) such incidental, consequential and supplemental
matters as may be necessary to carry out the provisions of
this Act.

D (3) Every Board of Directors of a corresponding new
bank, constituted under any scheme made under sub-
section (1), shall include

(a) representative of the employees, and of depositors, of
such bank, and
E
(b) such other persons as may represent the interests of
each of the following categories, namely, farmers, workers
and artisans,

to be elected or nominated in such manner as may be -"i
F specified in the scheme."

The object of Section 9 of the Act, insofar as it is material, is to
empower the Central Government to make a scheme for the constitu-
tion of the Board of Directors so as to include representatives of the
emp1oyees and other specified categories. "Employees" include work-
G men and non-workmen. The categories specified, apart from the
employees, are depositors, farmers, workers and artisans. The rep- ~
resentatives of these classes of people are to be either elected or
nominated in the manner specified by the Scheme. The legislature has
left it to the Central Government to make a scheme providing for
appointment to the Board from amongst the specified categories either
H by election or by nomination. The discretion as to the mode of
BANK OFFICER CONFEDERATION v. U.0.1. (TIIOMMEN, J.j 857

'l . appointment is, of course, left to the Central Government, but it is not
an unrestrained or unrestricted discretion, but a discretion which must A
be reasonably exercised so as to give effect to the true intent of the
legislature as to the composition of the Board of Directors. The
object of the legislature is to give the Board a truly representative
"' ~ character so as to reflect the genuine interests of the various persons
manning or dealing with the bank as an industry and a commercial B
enterprise.
I

The object of the Act is to nationalise the banks in order to, as
stated in the preamble to the Act, "control the heights of the economy
,)v and to meet progressively, and serve better, the needs of development
of the economy in conformity with the national policy and objectives".
c
f The very purpose of that legislative exercise is to render the largest
good to the largest number of people of this "sovereign, socialist,
secular, democratic republic". (See the preamble to the Constitution
enshrining the national policy and objectives.) It is with this object in
view that the Act has envisaged a truly representative. Board of
Directors chosen by election where election is feasible or by nomina- D
tion where that mode is more appropriate. But the legislature has·left
it· to the Central Government to specify by a scheme the manner in
which the election or nomination is to be conducted, bearing in ntind
-< the true character and objective of the banking industry and its distin-
guishing features as a highly sensitive commercial enterprise. Neither
the election nor the nomination should be conducted in a manner E
unmindful of the distinctiveness of the banking industry. What is
postulated is such election or nomination as would lend to the Board of
Directors its truly representative character in consonance and bar-
mony with the extremely delicate, vital and significant role of the
banking industry in the context. of the national policy and objectives
~ and economic development. The mode of election or nomination F
must, therefore, be such as would be ideally suitable and appropriate
to the banking industry and the choice of the mode is generally a
matter for decision by the Central Government. The Central Govern-
ment must in this regard act in consultation with the Reserve Bank of
India, for it is the latter that has the necessary expertise and intimate
knqwledge in the field of banking, finance and other connected mat- G
' ters. The Act, therefore, requires the Central Government to make
f the Scheme in consultation with the Reserve Bank of India. Any
amendment or variation of the Scheme also requires consultation with
c the Reserve Bank oflndia. [See Section 9(4)].
The Additional Solicitor General is right when he submits that it
H
858 SUPREME COURT REPORTS [1989] 3 S.C.R.

A is generally within the discretion of the Central Government to choose
the special mode of appointment. The Government may choose elec-
tion or nomination as the appropriate mode of appointment in respect
of various categories. But we do not agree with him when he >ubmits
that the Central Government has a discretion to avoid election even
where election is appropriate and feasible in respect of a particular
B
category of persons. The very object of leaving the choice to the
Central Government as to the mode, which is election or nomination
is to enable it to reasonably exercise its discretion in such a ~ay as t~
give the best form of representation to every category of persons
mentioned in the Act. It may be possible to appoint a representative of
the depositors by election instead of nomination. It would be perfectly
c within the discretion of the Central Government to choose that mode.
On the other hand, the depositors being not an organised body of
persons, although easily identifiable, selection of their representative
by nomination may be easier, more feasible and perhaps more
appropriate for the purpose of appointment to the Board. Farmers,
workers other than employees, and artisans mentioned under sub-
D section 3(b) of Section 9 are best represented by nomination, they
being difficult of identification and their connection with the bank
being more remote than in the case of employees or even depositors.
For these classes of people, the discretion is entirely that of the Central
Government to choose the mode of representation. In the case of
employees, on the other hand, election is indeed the most logical, the
E most appropriate, the most democratic and certainly the most
advantageous form of representation. They are well-identified, well-
organised, well-motivated and interested associates and participants in
the banking industry. They are as much a part of the bank as the
managment is. There can be no legitimate management culture foreign
to their vital interests. There can be no valid management policy con-
-
F trary to their genuine needs. The Act does not contemplate a manage-
ment unmindful of the true and legitimate interest of the employees.
In a nationalised bank, everyone is as much an employee as he is an
employer. There is no antithesis between the management and the
employees. The distinction that traditionally existed prior to nationali-
sation is no longer applicable. The true management culture is indeed
G the culture that represents the various interests of all persons specified
under Section 9 as well as the larger and wider interests of national
economy as postulated in the preamble to the Act.

We will now examine the Scheme. Clause 3 of Chapter II of the
Scheme provides:
H
--; ;

BANK OFFICER CONFEDERATION v. U.0.1. [THOMMEN, l.] 859

"3. Constitution of the Board.-As soon as may be after
A
the commencement of this Scheme, the Central Govern-
ment shall, by notification in the official Gazette, consti-
tute the Board of a nationalised bank, consisting of

(a)
B
(b )(i) one Director, from among the employees of the
nationalised bank, who are workmen, to be appointed by
the Central Government from out of a panel of three such
employees furnished to it by the representative Union,
within a date to be specified by the Central Government;
'
L c
(ii)

(~ ................................................ D

~I
(c) one Director, from among the employees of the
nationalised bank, who are not workmen, to be appointed E
by the Central Government after consultation with the
Reserve Bank;

(d)

(e) F

00 ................................................ .
(g)

(h) G

The scheme-making authority appears to us to have exercised
the legislative power delegated to it in making the Scheme in con-
sonance with the Act, although in a certain respect concerning the
non-workmen-employees the intention of the delegate of the legisla-
ture could have been articulated a little more explicitly. We say so in H
860 SUPREME COURT REPORTS [1989] 3 S.C.R.

the light of the contemporaneous construction placed on the statute by
A
the delegate, namely, the Central Gove·mment, as evinced by its own
practice prior to the circular dated 23.8.1982. Until the date of the
circular, the consistent practice of the Central Government .was to
appoint a non-workmen Director from out of a panel of three names
furnished to it by the majority association of non-workmen-em-
B ployees. The Central Government understood the Act and the Scheme
to warrant such mode of appointment in the case of all employees. In
other words, the Central Government understood sub-clause (c) of
Clause 3 regarding non-workmen-employees to warrant the same type
of representation as in the case of workmen-employees mentioned
under sub-clause (b) of Clause 3. The field of choice was thus under-
C stood by the Government to be limited to the panel of names
furnished by the representative Union of workmen or Association of
non-workmen as the case may be. But, as stated earlier, sub-clause (c)
of Clause 3 is vaguely drafted and when read without regard to the
legislative intent, as disclosed by the Act, is capable of a contrary
interpretation, as is now sought to be put upon it by the Central
D Government, and that interpretation is, in our view'· wrong, and, in
any case, out of harmony with the principle enshrined in Articles
19{l)(c) and 43(A) of the Constitution.

The Additional Solicitor General poses the question whether the
Scheme would not be even more defective if sub-clause (c) were to
E receive the same construction as sub-clause (b) so as to restrict the
choice of appointment to the three persons specified on the panel
furnished by the representative Association. The Act, he says, speaks
of election or nomination, and if election were to be construed to be
the appropriate mode of choosing the representatives of the
employees, appointment by nomination of one person out of the panel
F furnished by the representative Union of workmen or Association of
non-workmen, as the case may be, would not be a perfect representa-
tion in keeping with the principle of election. That may or may not be
so, and there is always room for improvements; but the petitioners
have no complaint on that score. If the Central Government were to
provide for election in the manner chosen by it so as to appoint the
G true representatives of the concerned employees, Mr. Sachar submits,
the petitioners would have no complaint, provided the provisions laid
down in that behalf are valid and reasonable.

While, in our view, it is open to the Central Government to
amend the Scheme to improve on the machinery for the conduct of an
H appropriate election, it is incumbent upon it, until any such amend-
BANK OFFICER CONFEDERATION v. U.0.1. [THOMMEN, J.] 861

1 ment is made, to work the present Scheme in such a way as to give the A
maximum scope for the concerned employees to exercise their choice
in the selection of their representatives. That means, it would be
perfectly in order for the Central Government to continue the practice
followed by it prior to the circular in question or to hold election of the
representatives of the concerned employees, and, if necessary, to
amend the Scheme suitably for that purpose. B

In the circumstances, we declare that the circular dated 23.8.1982
(Annexure A) is ultra vires the Act and the Scheme a~d it is, therefore,
null and void and of no effect. The Transfer Case is accordingly dis-
posed of. Civil Miscellaneous Petition No. 8572 of 1988 and Transfer
Petitions Nos. 376-401 of 1985 are allowed. Parties shall bear their c
respective costs.
)
T.N.A. Petitions allowed.

)