Supreme Court of India
ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & ORS.versusRADHEY SHYAM PANDEY
- Citation
- 2020 INSC 238
- Decided
- 2 March 2020
- Disposal
- Disposed off
- Bench
- ARUN MISHRA
Holding
The VRS scheme, once approved by the Central Board of Directors, obliges SBI to pay proportionate pension to employees with fifteen years of service, and the bank's clarification denying such benefit is unenforceable.
Summary
The Supreme Court examined whether employees who retired under the State Bank of India Voluntary Retirement Scheme (VRS) of 2000 and had completed fifteen years of service were entitled to a proportionate pension under the SBI Employees' Pension Fund Rules. The Court held that the Central Board of Directors' approval of the scheme, based on the Indian Banks' Association and Government of India proposals, created a binding contractual obligation to pay pension on completion of fifteen years of service. The bank's later clarification denying pension, which relied on existing pension rules requiring twenty years of service, was held to be ineffective and contrary to the scheme. The Court emphasized that the scheme must be read as a whole, interpreted against the bank, and that any denial of pension would violate Articles 14, 16 and 21 of the Constitution. Consequently, the Court ordered SBI to pay the proportionate pension to all eligible employees and dismissed the appeals.
Issues considered
- Whether employees who opted for SBI VRS 2000 and completed 15 years of service are entitled to pension under the SBI Pension Fund Rules.
- Whether the clarification issued by SBI denying pension is enforceable.
- Whether the VRS scheme constitutes a contract that can be unilaterally altered by the bank.
- Whether denial of pension violates constitutional guarantees of equality and non‑arbitrariness (Arts. 14, 16, 21).
- Whether the Central Board's approval creates a binding obligation despite later failure to amend the pension rules.
Legislation cited
- Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970
- Income Tax Act, 1961s. 10(10C)
- Indian Contract Act, 1872s. 16, s. 19, s. 19-A, s. 23, s. 24
- State Bank of India Act, 1955s. 49, s. 50
Subjects
service lawvoluntary retirement schemepension entitlementcontractual obligationunconscionable contractequality clauseArticle 14Article 16public sector banksbargaining power
Judgment
814 [2020]REPORTS
SUPREME COURT 4 S.C.R. 814 [2020] 4 S.C.R.
A ASSISTANT GENERAL MANAGER,
STATE BANK OF INDIA & ORS.
v.
RADHEY SHYAM PANDEY
B (Civil Appeal No. 2463 of 2015)
MARCH 02, 2020
[ARUN MISHRA, M. R. SHAH AND B. R. GAVAI, JJ.]
Service Law – Voluntary Retirement Scheme – Whether the
respondent employees are entitled to pension on completion of 15
C
years of service as per the State Bank of India Voluntary Retirement
Scheme (VRS framed in 2000) – Held: The Central Board of
Directors of the SBI accepted the memorandum for making payment
of pension, in case it was not accepting the proposal, in the
memorandum it ought to have said clearly that it was not ready to
D accept the proposals of the Government and the Indian Bank
Association (IBA) and rejects the same – However, once it approved
the proposals referred to in the memorandum which were on the
basis of IBA’s letter and Government of India’s decision it was bound
to implement it in true letter and spirit – By accepting the same,
binding obligation was created upon the SBI to make payment of
E
pension on completion of 15 years of service – It cannot invalidate
its own decision by relying on fact it failed to amend the rule, whereas
other Banks did it later on with the retrospective effect – They cannot
invalidate otherwise valid decision by virtue of exclusive superior
power to amend or not to amend the rule and act unfairly and make
F the entire contract unreasonable based on misrepresentation – The
scheme of contractual nature has to be read in the context and in
the backdrop of facts and what has been resolved by the Board of
Directors – There is no ambiguity with respect to the admissibility of
pension when the memorandum and the scheme are read together –
In case of ambiguity and even if two interpretations are possible in
G
the backdrop of facts of the case, one in favour of the employee
has to be adopted and any clarification, if it denies the benefit of
pension, has to be held to be unenforceable, illegal and contrary to
law – In the instant case, the eligibility clause, when read with clauses
providing the benefit, i.e., clauses 5 and 6 of the scheme, leaves no
H
814
ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 815
ORS. v. RADHEY SHYAM PANDEY
room for any doubt and makes it clear the employee with 15 years A
of service were treated as eligible to claim the benefit of the scheme
floated by SBI – Therefore, the employees who completed 15 years
of service or more as on cut-off date were entitled to proportionate
pension under SBI-VRS to be computed as per SBI Pension Fund
Rules.
B
Disposing of the appeals, the Court
HELD: 1. It is apparent that once the Central Board of
Directors accepted the memorandum for making payment of
pension, in case it was not accepting the proposal in the
memorandum, it ought to have said clearly that it was not ready C
to accept the proposals of the Government and the IBA and rejects
the same. Once it approved the proposals referred to in the
memorandum, which were on the basis of IBA’s letter and
Government of India’s decision it was bound to implement it in
true letter and spirit. By accepting the same, binding obligation
D
was created upon the SBI to make payment of pension on
completion of 15 years of service. It cannot invalidate its own
decision by relying on fact it failed to amend the rule, whereas
other Banks did it later on with retrospective effect. They cannot
invalidate otherwise valid decision by virtue of exclusive superior
power to amend or not to amend the rule and act unfairly and E
make the entire contract unreasonable based on
misrepresentation. It was open to the Board of Directors to reject
the proposal. Once it accepted the proposal to make payment of
pension on completion of 15 years of service as proposed in the
memorandum, though the scheme is tried to be interpreted by
F
the SBI that pension was to be admissible as provided in the rule
that refers to proportionate pension as noted by this Court in
O.P. Swarnakar & Ors., and what was decided by Government of
India/IBA, was not taken away rather adopted by the Central
Board of Directors. The scheme of contractual nature has to be
read in the context and in the backdrop of facts and what has G
been resolved by the Board of Directors. There is no ambiguity
with respect to the admissibility of pension when the memorandum
and the scheme are read together. In case of ambiguity and even
if two interpretations are possible in the backdrop of facts of the
case, one in favour of the employees has to be adopted and so-
H
816 SUPREME COURT REPORTS [2020] 4 S.C.R.
A called clarification dated 11.1.2000 even if considered in the
manner so as to deny the benefit of pension, has to be held to be
unenforceable, illegal and contrary to law. [Para 53][877-G-H;
878-A-E]
2. It is apparent from the eligibility clause of the VRS
B scheme that eligibility is provided for the employees having 15
years of pensionable service and they will be entitled for benefits
as provided in the scheme. The eligibility clause, when read with
clauses providing the benefit, i.e., clauses 5 and 6 of the scheme,
leaves no room for any doubt and makes it clear that employees
with 15 years of service were treated as eligible to claim the
C benefit of the scheme floated by SBI. It was not the provision in
the VRS scheme that incumbents having completed 20 years of
service would be entitled for pensionary benefits. The scheme
was carved out specially for attracting the employees by providing
pension and other benefits to eligible persons like ex gratia,
D gratuity, pension and leave encashment. Deprivation of pension
would make them ineligible for the benefits and would run
repugnant to the eligibility clause. [Para 54][878-E-H]
3. The submission raised on behalf of the SBI that the draft
scheme nowhere stipulated that 15 years’ service would be the
E eligibility or that on completion of 15 years’ service, the incumbent
would be eligible for pension, is factually incorrect. It is apparent
from the material circumstances, documents, and correspondence
that the decision was taken at all levels including the one by the
Central Board of Directors of SBI, that the benefit of pension
was to be given to the employees on completion of 15 years of
F service. In that perspective, vagueness of scheme of SBI, if any,
can be of no advantage as it is clear beyond the pale of doubt that
pension was heart and soul of the scheme with ex gratia on
completion of 15 years of service. It is due to the reason that the
benefit was to be accorded to the incumbents having completed
G 15 years of service, Regulation 28 as applicable to other
nationalised banks was proposed to be modified as reflected in
the letter of IBA dated 11.12.2000 and Government of India letter
dated 5.9.2000. Later on, the regulation was amended in 2002
after the scheme had already been implemented in right earnest.
H
ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 817
ORS. v. RADHEY SHYAM PANDEY
There was not even an iota of doubt that VRS was to give benefits A
to all eligible employees having completed 15 years of service.
It was apparent from the letter dated 29.12.2000 of SBI that the
guidelines of IBA were approved by the Central Board of
Directors in its meeting dated 27.12.2000. [Para 55][879-A-E]
4. This Court observed that the principal aim of the socialist B
State as envisaged in the Preamble is to eliminate inequality. The
basic framework of socialism is to provide security in the fall of
life to the working people and especially provides security from
the cradle to the grave when employees have rendered service
in heydays of life, they cannot be destituted in old age, by taking
action in an arbitrary manner and for omission to complete C
obligation assured one. Though there cannot be estoppel against
the law but when a bank had the power to amend it, it cannot take
shelter of its own inaction and SBI ought to have followed the
pursuit of other banks and was required to act in a similar fair
manner having accepted the scheme. [Para 63][885-F-H] D
Bank of India & Ors. v. O.P. Swarnakar & Ors. (2003)
2 SCC 721 : [2002] 5 Suppl. SCR 438 ; Delhi Transport
Corporation v. D.T.C. Mazdoor Congress & Ors. (1991)
Supp 1 SCC 600 : [1990] 1 Suppl. SCR 142 ; Central
Inland Water Transport Corporation Ltd. & Anr. v. Brojo E
Nath Ganguly & Anr. (1983) 3 SCC 156 : [1986] 2
SCR 278 ; Bank of India & Anr. v. K. Mohandas &
Ors. (2009) 5 SCC 313 : [2009] 5 SCR 118 ; D.S.
Nakara & Ors v. Union of India (1983) 1 SCC 305 :
[1983] 2 SCR 165 – relied on.
F
HEC Voluntary Retd. Employees Welfare Society v. Heavy
Engineering Corporation Ltd. (2006) 3 SCC 708 :
[2006] 2 SCR 678 ; Jan Mohd. Noor Mohd. Bagban v.
State of Gujarat, AIR 1966 SC 385 : [1966] 1 SCR
505 ; Atlas Cycle Industries Ltd. v. State of Haryana
(1979) 2 SCC 196 : [1979] 1 SCR 1070; S.G. G
Jaisinghani v. Union of India, AIR 1967 SC 1427 :
[1967] 2 SCR 703 – referred to.
H
818 SUPREME COURT REPORTS [2020] 4 S.C.R.
A A. Schoroeder Music Publishing Co. Ltd. v. Macaulay
(formerly Instone) (1974) 1 WLR 1308 ; Levison v.
Patent Steam Carpet Co. Ltd; (1949) 2 All ER 584 –
referred to.
Case Law Reference
B [2002] 5 Suppl. SCR 438 relied on Para 30
[2006] 2 SCR 678 referred to Para 30
[1966] 1 SCR 505 referred to Para 37
[1979] 1 SCR 1070 referred to Para 37
C
[1990] 1 Suppl. SCR 142 relied on Para 51
[1986] 2 SCR 278 relied on Para 50(a)
[1967] 2 SCR 703 referred to Para 52(f)
[2009] 5 SCR 118 relied on Para 58
D
[1983] 2 SCR 165 relied on Para 63
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2463
of 2015.
From the Judgment and Order dated 23.11.2006 of the High Court
E of Judicature at Allahabad in Special Appeal No. 904 of 2006.
With
Civil Appeal Nos. 2287-2288 of 2010, 5035-5037 of 2012, 10813
of 2013.
F Vikas Singh, N.K. Kaul, Pradeep Kant, Sr. Advs., Sanjay Kapur,
V.M. Kannan, Harshal Narayan, Kauser Husain, Bharath Gangadharan,
Sanjay Kapur, Ms. Hansa Kaul, Divyanshu Sahay, Ms. Shradha Narayan,
Vishnu Shankar Jain, Sanjaye Goel, Jagjit Singh Chhabra, Saksham
Maheshwari, Ms. Kamini Jaiswal, Ms. Rani Mishra, Jatinderpal Singh,
Hari Shankar Jain, Pankaj Kr. Verma, Ms.Vaishnavi Ranjana, Vinay
G Rajput, Ankur S. Kulkarni, Mrs. K. Sarada Devi, M/s. Mitter & Mitter,
Advs. for the appearing parties.
H
ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 819
ORS. v. RADHEY SHYAM PANDEY
The Judgment of the Court was delivered by A
ARUN MISHRA, J.
1. The question involved is whether the respondent-employees
are entitled to pension on completion of 15 years of service as per the
State Bank of India Voluntary Retirement Scheme (for short, “the VRS
framed in 2000”). B
2. The matter has been referred to larger Bench due to conflict of
opinion between the Judges as to the admissibility of pension under the
VRS.
3. After obtaining approval of the Government of India, the Indian C
Bank Association (IBA) evolved a Voluntary Retirement Scheme. The
Central Board of Directors of the State Bank of India (in short ‘the
SBI’) adopted and approved the scheme in its meeting held on 27.12.2000
for implementing the VRS for the employees of the bank by retiring
them on completion of 15 years of service with the benefit provided in
the scheme. The scheme had been drawn up, keeping in view the D
guidelines issued by the IBA. “Memorandum” dated 26.12.2000 was
submitted by the Deputy Managing Director and the Corporate
Development Officer for according approval to the proposals contained
in the Memorandum as also for adopting the scheme as Annexure ‘B’ to
the Memorandum. E
4. The basis of Memorandum dated 26.12.2000, was the advice
by IBA vide letter dated 31.8.2000 in which it was pointed out that they
deliberated with the Government of India, Ministry of Finance (Banking
Division), at its meeting with the Finance Minister, with Chief Executives
of public sector banks on 13.6.2000. The human resource and manpower F
planning in public sector banks were reviewed, and a Committee was
constituted to examine the issues concerned to public sector banks and
to suggest suitable remedial measures. The Committee considered the
economic reforms set in motion in the year 1990, the high establishment
cost and low productivity in public sector banks. It was felt that the
banks convert their human resource into assets compatible with the G
business strategies through a variety of measures. The data available
indicated that 43% of the employees in public sector banks were in the
46 + age group, and only 12% were in the 25-35 age group. It was felt
that this pattern has severe implications for the banks regarding mobility,
training, development of skills, and succession plans for higher-level
H
820 SUPREME COURT REPORTS [2020] 4 S.C.R.
A positions. The workforce was in excess. In order to remedy the situation,
the Committee placed before the Government two schemes, viz.,
Sabbatical Leave, and a Voluntary Retirement Scheme. The IBA vide
letter dated 13.7.2000 sought no objection from the Government for
circulating the schemes to the banks for consideration and adoption by
their Boards. The Government conveyed on 29.8.2000 that it did not
B
have any objection for adopting and implementing the scheme by the
respective Board of Directors. It advised that the banks may adopt these
schemes for sabbatical leave and voluntary retirement based on the
essential features of the schemes given in the annexure to the letter.
The scheme provided eligibility for all permanent employees with 15
C years of service. It provided for amount of ex gratia and other benefits
accepted by the Government of India which were to be provided (i)
gratuity as per the Gratuity Act/service gratuity, as the case may be; (ii)
pension (including commuted value of pension)/bank’s contribution
towards provident fund; and (iii) leave encashment as per rules.
D 5. After the Central Board of SBI approved the proposals
contained in the memorandum on 27.12.2000, a circular was issued on
29.12.2000 in which it was mentioned that the IBA advised that as the
Committee constituted by the Finance Ministry recommended introduction
of a VRS in order to rationalise the manpower, the Government of India
has no objection for adopting and implementing the VRS. It was clearly
E stated in the Circular dated 29.12.2000 that the Central Board of Directors
accorded approval for adopting and implementing the SBI voluntary
Retirement Scheme drawn up, “keeping in view the guidelines issued by
the IBA.” Copy of the scheme was placed as Annexure B. The scheme
was open from 15.1.2001 till 31.1.2001. Specimen applications and other
F related forms inter alia for pension were also circulated, which formed
part of the circular. The circular also made it clear that gratuity, provident
fund contribution as per the Provident Fund Rules, pension in terms of
the SBI Employees’ Pension Fund Rules, leave encashment to be provided
beside the amount of ex gratia.
G 6. The heart and soul of the scheme were that benefits to be
given on completion of 15 years of service. The eligibility for benefits
was provided to those who had completed 15 years of service as on
31.12.2000.
7. The SBI submitted that it reserved a right under the scheme to
H modify, amend or cancel it or any of the clauses and to give effect to it
ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 821
ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]
from any date deemed fit. The Deputy Managing Director-cum-CDO A
was the competent authority for the purpose. As specific queries were
raised, a clarification was issued by the Deputy Managing Director on
15.1.2001, in which about a query whether an employee on completing
15 years of pensionable service as on the relevant date of retirement,
would be entitled to pensionary benefits, in response, para 6(c) of the
B
scheme was reiterated, and it was also mentioned that as per the existing
rules, employees who had not completed 20 years of pensionable service,
were not eligible for pension.
8. The clarification issued by the Deputy General Manager was
not in the form of modification or amendment of the scheme. The Deputy
General Manager in clarification quoted the provisions and simply stated C
the position of a rule that the pensionable service was 20 years. The
communication was clarificatory and did not have the effect of modifying
the SBI VRS scheme as approved and adopted.
9. (a) Radhey Shyam Pandey questioned the refusal of the bank
to pay pension, vide communication dated 26.9.2006 in the writ application D
filed in the High Court at Allahabad. He retired on 31.3.2001 under the
SBI VRS. On 18.3.2001, the bank accepted the offer of the employee
to retire him voluntarily. He was aged 59 years three months and had
nine months service still to go before attaining the age of superannuation.
On 31.3.2001, when the VRS became effective, he had put in 19 years, E
nine months, and 18 days of pensionable service. He had to retire on
completion of 60 years, and would have put in a little more than 20 years
of pensionable service.
(b) The High Court held that the case of the employee fell under
the Second Part of Rule 22(i)(a). He was in service of the bank on and F
after 11.11.1993 and completed ten years of pensionable service, and
further, he attained the age of 58 years before the date he retired. The
High Court opined that the clarification was not part of the VRS scheme.
The employee retired outside rule as per the contractual retirement
scheme. The contract had to prevail. In Pension Fund Rules, Clause (a)
in Rule 22(i) was inserted to give the employees the benefit of pension G
after ten years of pensionable service even if they had joined late. The
High Court found that the matter was covered by Rule 22(i)(a). The
admissible benefit cannot be denied. If a contracting party is entitled to
take benefit of a permissible clause, then it cannot be denied to him.
H
822 SUPREME COURT REPORTS [2020] 4 S.C.R.
A (c) In the Chairman, State Bank of India & Ors. v. Mihir Kumar
Nandi & Anr. (C.A. Nos. 5035-5037/2012), a Division Bench of the
High Court of Calcutta dismissing the intra-court appeal, affirmed the
order of the learned Single Judge and directed to make the payment of
pension. The employee was appointed on 21.5.1988. He opted for VRS
on 15.1.2001. The acceptance was conveyed on 17.3.2001 by which he
B
was informed that he would be relieved of his duties on 31.3.2001. Vide
letter dated 2.8.2001, the employee was granted a pension at the rate of
Rs.1024 per month. However, vide communication dated 30.8.2001, the
pension payment order, together with payment of commuted value, was
stopped in view of the amendment of Rule 22 of the Pension Fund Rules.
C Though the amendments in Pension Fund Rules were made effective
with effect from 31.3.2001, and the age of retirement had been raised
from 58 years to 60 years, w.e.f. 22.5.1998, this had necessitated increase
in age for admission to Pension Fund to 58 years specified in Rule 22(i)(a)
of the Rules so that the employees who have retired/are retiring on
attaining the age of 60 years after completing ten years of pensionable
D
service on or after 22.5.1998 are eligible for pension.
(d) The Central Board of the SBI in its meeting held on 30.1.2001
accorded approval to the amendment in Rules 8 and 22(i)(a) of the Rules
as set out in Annexure 1. The Trustees of the SBI Employees’ Pension
Fund in their meeting on 30.10.2001 adopted the amended rules.
E Consequently, a Circular was issued on 8.11.2001. The amendment was
given effect from 31.3.2001, the date on which it was notified, though it
was adopted by the Trustees of the SBI Trust Pension Fund in October
2001.
(e) A Division Bench of the High Court held respondent-employee,
F as per rules on 17.3.2001, the date on which his offer was accepted,
was eligible to get the pension. On 31.3.2001, the amended rules were
published, which took away the existing right to get the pension. In VRS
Scheme, it was mentioned that the pension would be payable in
accordance with the rules as on 31.3.2001. The employee had no means
G of knowing about the future amendment of the Pension Rules, which
would be detrimental to his interest. If he had known the fact, then he
would not have opted for the scheme. The silence maintained by the
employer in such a situation amounted to a fraud on its part. The High
Court relied upon section 17 of the Contract Act and Illustration (d) to
section 19 of the Contract Act. The High Court further held that it was
H
ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 823
ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]
the duty of the employer to disclose that there would be a future A
amendment on the last date of their service by which their right to pension
would be taken away. The same cannot but be said to be unfair and
arbitrary. Thus, the High Court held that action is violative of Article 14
of the Constitution of India. The employee is entitled to the relief of
pension along with interest.
B
10. Ramesh Prasad Nigam (supra) had joined the services in
1984 in the clerical cadre and was confirmed on 2.3.1985. He had applied
for VRS, having completed 15 years of service and 57 years of age.
The clarification was internal circulation. It was not within the knowledge
of employees; as such, he was entitled to the pension.
C
11. (a) In C.A. Nos.2287-88/2010, M.P. Hallan joined the services
of the bank on 18.5.1981 as a clerk. The acceptance under VRS was
communicated on 17.3.2001. On 27.3.2001, he applied to withdraw his
request made under VRS as retirement was w.e.f. 31.3.2001. The Bank
declined application on 18.4.2001 on the ground that the last date of
withdrawal of the application was 15.2.2001. The employee claimed D
pension under Pension Fund Rules in terms of SBI Employees’ Pension
Fund Rules (hereinafter referred to as ‘Pension Rules’). By writing a
letter on 12.4.2001, the claim of the employee for withdrawal of
application for voluntary retirement, pension, and leave encashment was
again declined on 4.7.2001. Thereafter, he filed a writ petition in the E
High Court of Punjab & Haryana.
(b) The High Court rejected the claim concerning the withdrawal
from VRS. As the last date for withdrawal was over, and acceptance
had been communicated, however, considering Rule 22 of the Pension
Rules, the High Court opined that as the employee completed more than F
19 years and ten months of service on 31.3.2001, therefore, the first part
of clause one of Rule 22 is not applicable. Further, the third part of
clause (a) is not applicable as he has completed ten years of service but
not attained the age of 60 years. The case of the employee was covered
under the second part of clause (a) of Rule 22, which enabled the member
to get a pension if an employee in the service of the bank on or after G
1.11.1993, and completed ten years pensionable service and attained 58
years age. The employee applied in terms of the Pension Rules prevailing
in January 2001. Alternatively, if an employee was in service of the bank
on or after 1.11.1993, having completed ten years of pensionable service
and on attaining the age of 58 years, shall be entitled to a pension. Thus, H
824 SUPREME COURT REPORTS [2020] 4 S.C.R.
A he fulfilled the requirement of second part of clause (a) of Rule 22 as he
was in service of the bank on 1.11.1993 and completed ten years of
pensionable service, and the age of 58 years, therefore, in terms of Rule
22, he was entitled to pension as well as leave encashment dues along
with interest at the rate of 9 percent per annum.
B 12. On behalf of the bank, it was submitted that VRS 2000
stipulated that the pension in terms of SBI Pension Fund Rules on the
relevant date, i.e., 31.3.2001, was to be provided. In other words, in
case the employee was entitled to a pension in terms of Pension Rules
and not otherwise. A provision was added in Rule 22(1) of the Pension
Rules in the year 1986, accordingly, the pension was to be granted in all
C cases relating to voluntary retirement on completion of 20 years of
service. The employees opting for the SBI-VRS would be governed
only by Rule 22(i)(c) as it falls under the category of voluntary retirement.
Under Rule 22(iii), a member who has been permitted to retire under
clause 22(i)(c) shall be entitled to a proportionate pension, which is on
D completion of 20 years of pensionable service. Eligibility clause 3 has
nothing to do with the admissibility of the pension. It was further submitted
that the employees who completed ten years of pensionable service and
were 60 years of age were entitled to pension; while employees under
the VRS on completion of 15 years would not get pension and for that
20 years’ service was necessary, the submission of employees that it
E would be discriminatory is based on incorrect premise. There is no
challenge to the SBI Pension Rules or SBI-VRS. The bank provided the
pensionable service period of 10 years on attaining the age of 60 years
in terms of reservation policy. The bank appoints late entrants like ex-
servicemen who, after serving in Armed Forces, join the bank and are
F left only with about ten years of service before they attain the age of
superannuation. It is to grant benefit to such a particular category of
employees that a period of 10 years on attaining the age of superannuation
of 60 years was provided in Rule 22(i)(a).
13. The appellants further submitted that 20 years’ period is
G provided in case of voluntary retirement to ensure that an employee on
whom the bank has spent a considerable amount during training, works
for a substantial period before he seeks retirement. It is a uniform policy
followed by the bank. Regulation 28 was amended in 2002 providing for
15 years of service. It applies to the employees who are governed by
the Bank Employees’ Pension Regulations, 1995. These regulations do
H
ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 825
ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]
not apply to SBI employees as the SBI Pension Rules govern them. SBI A
employees are entitled to Provident Fund, gratuity and pension in terms
of the Rules on completion of 20 years of service. Thus, there cannot be
any comparison of SBI employees with the employees of other
nationalised banks. The clarification dated 11.01.2000 has also been relied
on by the bank. Now more than 19 years have passed and to grant a
B
pension to all those who have retired, w.e.f. 1.4.2001 would cast a huge
financial liability on the bank.
14. It was submitted on behalf of the employees that the decision
rendered by the High Court is appropriate. No case for interference is
made out in appeals. The very essence of the VRS was the admissibility
of pension on completion of 15 years of service and other benefits. Once C
the scheme was adopted and approved by the Central Board of SBI, the
clarification could not have been made to the detriment of employees.
The clarification did not have effect of the amendment, modification, or
cancellation of the VRS scheme as approved and adopted by Board.
The amendment in the Pension Regulations of 1995 was carried out by D
other public sector banks with retrospective effect in 2002, though the
scheme was floated and implemented in the year 2000-2001. However,
the benefits were extended on the strength of the VRS scheme even
before amending the Regulations of 1995. The SBI adopted the Scheme
in toto and Pension Rule 22 providing eligibility of 20 years applies only
to those cases where employees seek retirement in the ordinary course E
of completion of 10 years or 20 years, as the case may be. The VRS
was taken in the specific scheme providing eligibility and benefits on
completion of 15 years of service, and that constituted a concluded
contract. It was not open to the bank to alter the terms. In case the
bank’s submission is accepted, it would lead to a situation that employees F
who have already reached the age of superannuation, would have been
entitled to take VRS. The bank has misled the employees, and the action
could not be said to be fair. Once an offer was accepted and after that
to amend the rules or not to amend the rules till 31.3.2000 depended on
exercise of power by SBI which may have the effect to deprive the
pension when the option was not available even to withdraw the offer as G
it was the last day of the employment. Rule 22 was amended, that too
with retrospective effect. Thus, the employees who joined service after
retirement from other services, have completed the age of 58 years and
were in employment as on 1.11.1993 were entitled to a pension. They
have also been deprived of the benefit of pension, which would have H
826 SUPREME COURT REPORTS [2020] 4 S.C.R.
A been otherwise available to them. In case pension was not to be paid, it
was not a profitable bargain for them to forego pension only for ex
gratia benefit. It was incumbent upon the SBI to amend the Rule, in
case it was necessary to do so. Otherwise, also, the meaning of the
expression “pension” to be paid as per rules was that proportionate pension
to be awarded to the employees with 15 years’ service who were eligible
B
for benefits granted as specified in the circular and the VRS scheme.
The clarification issued on 11.1.2000 only pointed out the provisions of
the VRS scheme as well as the existing position of the rule. It could not
have effect to take away the benefit in any manner which became
available to the employees of obtaining the pension on completion of 15
C years of permanent pensionable service. On the one hand, employees
who served for ten years and attained the age of superannuation were
entitled to pension and to deprive the same to a permanent employee
who rendered the service for 15 years, would be per se discriminatory,
unfair and arbitrary. Once the scheme was floated and approved, the
bank being State within the purview of Article 12 of the Constitution of
D
India, it would not be permissible for it to discriminate and act unfairly.
The VRS constituted an independent contract and was binding upon the
bank. The benefits could not have been taken away from eligible
employees who accepted VRS, which was implemented by the bank for
its benefit to induct new skills as well as to rationalise the workforce.
E Thus, appeals being bereft of merit, deserve dismissal.
15. The main question is whether, under the scheme as approved
and adopted by the Central Board of SBI, the pension is admissible to
the employees on completion of 15 years of permanent service.
Connected question is whether employees have been denied benefit of
F pension unfairly and arbitrarily contrary to the essential terms of the
scheme.
16. Firstly, it is necessary to consider the nature of the package,
which was accepted in the resolution by the Central Board of Directors
of SBI in its meeting dated 27.12.2000. As already mentioned, exercise
G was done in order to rationalise the workforce as it was felt that banks
were overstaffed. The IBA advised the SBI regarding the issues
confronting the public sector banks. In the memorandum submitted to
the Central Board of Directors of SBI, the following facts were mentioned
as to the adoption of Scheme in right earnest and requirement of
manpower planning:
H
ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 827
ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]
“The data available with IBA indicates that 43% of employees in A
Public Sector Banks are in the 46+ age group, and only 12% are
in the 25-35 age group. This pattern has serious implications for
the Banks with reference to mobility, training, development of
skills, and succession plans for higher-level positions. This, coupled
with excess manpower wherever it exists, would come in the
B
way of induction of new skills and proper career progression.
The Committee has recommended the introduction of a Voluntary
Retirement Scheme that would assist the Banks in their effort to
optimise their human resources and achieve a balanced age and
skills profile in keeping with their business strategies. IBA has
advised that the Government of India has conveyed that they have C
no objection to the banks’ placing before their respective Boards
of Director’s proposals for adopting and implementing the
Voluntary Retirement Scheme. It has been advised that Banks
may adopt the scheme after obtaining their Boards’ approval and
implement it in right earnest.” (emphasis supplied) D
“a) The high establishment costs of the Bank vis-à-vis the foreign
banks and new private sector banks have been a matter of concern.
The percentage of staff expenses to total expenses in the Bank is
21.85 against the percentage of 7.66 and 3.04 for foreign banks
and new private sector banks, respectively. Even if we compare E
it with other Public Sector Banks, our ratio is adverse.
d) With the computerisation of accounting and other work at a
large number of branches, manpower, which was needed for
balancing of books, is now rendered surplus. This indicates an
imperative need to rationalize the manpower at these branches. F
While we have already initiated steps for the productive
redeployment of staff at these branches through shift banking
and seven-day banking, there still exists scope for improvement
in this area. Most of these branches are situated in metropolitan
and urban centers. Incidentally, the experience of other banks in
respect of voluntary retirement schemes shows that a maximum G
number of applications have been received from these centers.
f) As against the average of 43% of employees in Public Sector
Banks in the 46+ age group, we have 47% of the employees in
this age group. Of this, 1/5th are in the age group of 56 and above.
H
828 SUPREME COURT REPORTS [2020] 4 S.C.R.
A To put it simply, 21,824 employees will reach the age of
superannuation and retire by March 2005.
In the light of the above-mentioned factors, it will be seen that the
manpower of the Bank will undergo major changes in the ensuing
years in number and deployment. Further, considering the variety
B of business the Bank undertakes, and its special role in the banking
sector, over-emphasis on quantitative parameters would be
inappropriate. An approach paper on Manpower Planning is placed
at Annexure-‘A’.
Considering the various aspects of Manpower Planning, we are
C of the view that the Voluntary Retirement Scheme should be
employed as a moderate tool to right-size the manpower in State
Bank of India.”
In the light of aforesaid, it is clear that the VRS scheme was
devised as a tool to reduce overstaffing. The memorandum submitted to
D the Central Board contained the following significant aspects:
“Keeping in view the above, the IBA guidelines and the feedback
received from other Banks, the draft ‘SBI Voluntary Retirement
Scheme (SBIVRS)’ is prepared and placed for approval at
Annexure-‘B.’
E It is proposed to introduce SBIVRS for employees who have as
on 31-12-2000, completed 40 years of age or 15 years of service
as approved by the Government of India and conveyed by IBA.
In terms of the IBA scheme, the Banks’ Boards may specify any
other category as ineligible. We propose to exclude the Watch
F and Ward staff as these positions cannot be reduced. We also
propose to exclude highly skilled and qualified staff from the
Scheme.
SBIVRS will be voluntary in nature. The decision to seek
retirement under the Scheme rests with the employee only. The
management will retain the discretion as to whether to accept or
G
not the request for voluntary retirement under the Scheme. We
have to ensure that while, on the one hand, our Bank benefits by
the rightsizing of the staff strength, on the other, any sudden exodus
of a very large number of staff does not destabilise the normal
operations of the Bank. Considering the attractive features of the
H
ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 829
ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]
Scheme, in terms of ex-gratia payment, etc., a large number of A
applications are expected. However, the Bank will have to control
the outflow according to its requirements. Towards this end, it
will be necessary to retain the discretion with the management of
the Bank to limit the number of employees allowed to retire in
each category of staff to be covered under SBIVRS, and we
B
propose to retain such discretion.”
(emphasis supplied)
It was proposed to introduce a VRS for employees who on
31.12.2000, completed 15 years of service as approved by the Government
of India and conveyed by IBA. So, it assumes significance that what C
was approved and conveyed, in terms of the IBA scheme, the Banks’
Boards were permitted to specify any other category as ineligible. The
SBI considering its requirement proposed to exclude the Watch and Ward
staff as these positions could not be reduced. It was also proposed to
exclude the highly skilled and qualified staff from the scheme.
D
Funds outlay was also proposed in the memorandum submitted to
the Central Board as under:
“FUNDS OUTLAY
As per the estimate received from Bank’s actuary, an outlay of
approximately Rs. 2100 crores would be required for the E
implementation of SBIVRS if 10% of the employees opt for
retirement. The break-up being as under:
Ex-gratia Rs. 1300.00 crores
Leave encashment Rs. 180.00 crores
F
Additional Provision for Gratuity Rs. 140.00 crores
Additional Provision for Pension Rs. 480.00 crores
(These estimates may undergo a change on receipt of clarification
from Government of India as to the components of ‘Pay’ for the
purpose of Ex-gratia)” G
A provision was made for the pension. The bank reserved the
right to modify, amend or cancel any or all the clauses. The Deputy
Managing Director and CDO would be the competent authority. Following
is the relevant clause regarding modification of the scheme:
H
830 SUPREME COURT REPORTS [2020] 4 S.C.R.
A “MODIFICATION OF THE SCHEME
Bank reserves the right to modify, amend or cancel any or all the
clauses of the Scheme and to give effect thereto from any date it
may deem fit. The Dy. Managing Director and CDO would be
the Competent Authority for the purpose.”
B
The effective date of retirement was 31.3.2001. The relevant
clause is extracted hereunder:
“EFFECTIVE DATE OF RETIREMENT
C While the SBIVRS will be open to employees from 15th January
2001 to 31st January 2001 (both days included), the retirement
under SBIVRS is proposed to be given effect from 31st March
2001.”
17. The letter dated 31.8.2000 annexed to memorandum submitted
D to the Central Board of the SBI is also of utmost significance in order to
understand what was accepted by the Central Board. The relevant portion
of the letter dated 31.8.2000 of IBA is extracted hereunder:
“Attention is invited to letter DO No. 11/1/99-IR dated 22.05.2000,
addressed to the Chief Executive of public sector banks by the
E Government of India, Ministry of Finance (Banking Division),
wherein banks have been advised to carry out detailed manpower
planning in order to adopt measures to have optimum human
resource at various levels in keeping with the business strategies
and requirements of each bank.
F At the meeting the Finance Minister had with Chief Executives
of public sector banks on 13th June 2000, the human resource and
man-power planning in public sector banks were reviewed, and a
Committee was constituted to examine the issues confronting public
sector banks in that regard and suggest suitable remedial
measures.”
G
“In order to remedy this situation with the urgency that
circumstances demand, the Committee has placed before the
Government two schemes, viz., Sabbatical Leave and a Voluntary
Retirement Scheme that would assist the banks in their effort to
optimise their human resource and achieve a balanced age and
H
ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 831
ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]
skills’ profile in keeping with their business strategies. Salient A
features of the two schemes are given in the Annexure.
IBA, vide its letter dated 13th July 2000, has sought no objection
from the Government for circulating the schemes to the Banks
for consideration and adoption by their Boards. The Government
have conveyed to us that they have no objection to the banks’ B
placing the two schemes before their respective Board of Directors
for adopting and implementing the above schemes. It has been
advised that the Banks may adopt these schemes for sabbatical
and voluntary retirement based on the essential features of the
schemes given in the Annexure, after obtaining their Board’s
approval and implement them in right earnest.” (emphasis supplied) C
“Banks are also requested to take special note of the following:
1. Section 10(10C) of the Income Tax Act read with Rule 2BA.
2. As per the amendments brought in by the Finance Act 2000,
so long as the bank complies with the rules framed under D
Section 10(10C), prior approval from the Chief Commissioner
or Director General of Income-tax, as the case may be, is not
required for VRS.
3. Income-tax shall be deducted at source in respect of ex-gratia
exceeding Rs.5.00 lakhs or such other ceiling as may be E
prescribed under the Income-tax Act.
4. Only completed years of service will be reckoned for arriving
at the minimum eligible service. Subject to this, fraction of
service of six months and above will be reckoned as one year
for the purpose of calculating the ex-gratia. F
5. While exercising discretion to decline applications for VRS or
to make exceptions in the case of employees categorised as
ineligible for VRS, the decision should not be discriminatory
among employees who are similarly placed and the reasons
therefor should be recorded. G
6. The competent authority for accepting VRS for the various
categories/class of employee should be clearly laid down by
the Board of Directors.
7. Banks should ensure compliance with requirements under
labour legislations before giving effect to the Scheme.” H
832 SUPREME COURT REPORTS [2020] 4 S.C.R.
A 18. IBA’s letter dated 31.8.2000 makes clear the salient features
of the VRS scheme that all permanent employees with 15 years of service
were eligible to retire. Ineligible persons have also been specified. In
unqualified terms, it was mentioned in the annexures that such employees
would be entitled to the amount of ex gratia of 60 days’ salary for each
completed year of service or salary for the number of months service is
B
left, whichever is less. Other benefits admissible were gratuity, pension
including the commuted value of pension, bank’s contribution towards
provident fund, and leave encashment as per rules. Thus, scheme was
to grant pension to all such employees who opted for VRS on completion
of 15 years of service and other benefits as specified in the scheme.
C The Government of India, Ministry of Finance, Department of Economic
Affairs, (Banking Division), that it communicated approval vide letter
dated 29.8.2000 to IBA, it was sent to the SBI also, the same is extracted
hereunder:
“F. No. 11/1/99-IR (Vol.II)
D Government of India
Ministry of Finance
Department of Economic Affairs
(Banking Division)
E
New Delhi, dated the 29th August 2000
To
The Chairman
Indian Banks‘ Association
F
MUMBAI
Sub:- Human Resource Management and Manpower Planning in
Public Sector Banks-Introduction of a Voluntary Retirement
Scheme/Scheme for Sabbatical Leave.
G Sir,
I am directed to refer to IBA’s letter No. PD/ACAP/GOVT/521
dated 13th July 2000 sending therewith a copy of the interim report
of the Committee on Human Resource Management in Public
Sector Banks and requesting for no objection from the Government
H for circulating to banks Voluntary Retirement Scheme and Scheme
ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 833
ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]
for granting Sabbatical Leave for consideration and adoption by A
their Boards, and to say that Government has no objection to the
proposals contained therein.
2. The draft circular letter sent by IBA has been slightly modified.
Copy of the modified draft is enclosed herewith.
3. It is requested that a copy of the circular issued to the banks B
may please be sent to Banking Division for record.
Yours faithfully
C
Sd/- (U.P. SINGH)
DIRECTOR (IR)”
19. The agenda submitted on 27.12.2000 for consideration of the
Central Board of SBI along with resolution are extracted as under: D
“AGENDA NO.3
Man- Power Planning and SBI Voluntary Retirement Scheme (SBI
VRS)
E
Submitted Memorandum dated the 26th December 2000 by the
Deputy Managing Director & Corporate Development Officer,
recommending that for the reasons stated therein, approval be
accorded for the proposals contained in the Memorandum as also
for adopting the stated approach to manpower planning and F
introduction SBIVRS in terms of the provisions contained in the
Scheme at Annexure ‘B‘ of the Memorandum.
Copies of the Memorandum were placed before the Directors
present at the Meeting.
‘‘APPROVED” G
(SEAL)
20. Annexure ‘B’ to the memorandum contained the VRS. The
VRS was prepared in view of the guidelines of the IBA. The amount of
ex gratia and other benefits specified in the scheme under clauses 5/ 6
of the scheme are extracted hereunder: H
834 SUPREME COURT REPORTS [2020] 4 S.C.R.
A “5. Amount of Ex-gratia:
The staff members whose request for retirement under SBIVRS
has been accepted by Competent Authority will be paid an amount
of ex-gratia of 60 days‘ salary (pay plus stagnation increments
plus dearness allowance) for each completed year of service (for
B this purpose fraction of service of six months and above will be
taken as one year and accordingly service of less than six months
will not be counted) or salary for the number of months service is
left, whichever is less. Fraction of a month, if any, will be ignored.
‘Relevant Date‘ means the date on which the employee ceases
C to be in service of the Bank as a consequence of the acceptance
of the Bank as a consequence of the acceptance of the request
for voluntary retirement under the Scheme. For the purpose of
calculation of ex-gratia, 60 days‘ salary mentioned in the Scheme
is to be taken as equivalent to 2 months‘ salary (with reference to
salary for the month in which employee is relieved from service
D on Voluntary Retirement.
Income Tax shall be deducted at source in respect of ex-gratia
exceeding Rs. 5.00 lakhs or such other ceiling as may be prescribed
under the Income Tax Act on the relevant date.”
E The benefits were as under:
“6. Other benefits
(a) Gratuity as payable under the extant instructions on the relevant
date.
(b) Provident Fund contribution as per State Bank of India
F
Employees‘ Provident Fund Rules as on relevant date.
(c) Pension in terms of State Bank of India Employees‘ Pension
Fund Rules on the relevant date (including commuted value of
pension).
G (d) Encashment of balance of Privilege Leave, as applicable, on
the relevant date.
(e) Respective facilities extended to officers/others such as
retention of accommodation, telephone, car, continuation of housing
loan, etc. will be extended to officers. Others retiring under
H SBIVRS as per present dispensations, at the discretion of
ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 835
ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]
Competent Authority. However, in such cases of retention of A
physical facilities, 50% of the amount of ex-gratia payable will be
released only after the employee surrenders the facility. No interest,
however, will be paid for the amount so withheld. All other
outstanding loans/advances will have to be repaid before date of
retirement under SBIVRS, failing which the amount of ex-gratia
B
and other terminal benefits payable to the employee will be
appropriated towards the outstanding loans/advances; and the
balance only will be payable to the employee.”
21. Most significantly, the scheme of the IBA, accepted by the
Board on 27.12.2000, was for providing pension on completion of 15
years of service. The pension specified in clause 6 of scheme was to be C
worked out in terms of the Pension Fund Rules including the commuted
value of the pension. It was not mentioned in the VRS adopted by the
SBI that the person on completion of 15 years would not be entitled to
the benefit of pension. On the other hand, proposal of IBA, as approved
by the Government of India, was accepted in toto by SBI. When gauged D
in terms of the proposals of the IBA, the essential feature was that an
employee was entitled to get pension on completion of 15 years of service.
The meaning of the expression “pension” in terms of the rules would be
proportionate pension on completion of 15 years of service as per the
terms of calculation provided in Rule 23 of the Pension Rules. VRS is an
independent contract and the background in which it was floated, pension E
on completion of 15 years of service was an essential part of the scheme
of VRS 2000, as approved by the Government and floated by the IBA
and adopted by all the Banks, and Pension Rules were to be amended
accordingly.
22. The Government of India suggested to the IBA to amend F
Regulation 29 of the Regulations of 1995 so that the employees do not
lose the benefit of pension, the IBA may work out modalities and suggest
amendments, if any, required to be made in the Pension Regulations to
ensure that the employees get the benefit of pension. The letter dated
5.9.2000 of Government of India is extracted hereunder: G
“F. No. 4/8/4/2000-IR
Government of India,
Ministry of Finance,
Department of Economic Affairs H
836 SUPREME COURT REPORTS [2020] 4 S.C.R.
A (Banking Division)
New Delhi, 5-9-2000
To
The Personnel Advisor,
B Indian Banks’ Association,
Mumbai
Sub.: Amendment to Regulation 29 of the Pension Regulations.
Sir,
C
I am directed to refer to this Division’s Letter No. 11/1/99 IR
dated 29-8-2000, conveying the Government’s no objection for
circulation of Voluntary Retirement Scheme in public sector banks.
The Scheme, inter alia, provides that employees with 15 years of
service or 40 years of age shall be eligible to take voluntary
D retirement under the Scheme. As per the provisions contained in
Regulation 29 of the Pension Regulations, an employee can take
voluntary retirement after 20 years of qualifying service and
thereafter becomes eligible for pension. Thus, employees having
rendered 15 years of service or completing 40 years of age but
not having completed 20 years of service shall not be eligible for
E pensionary benefits on taking voluntary retirement under the
Scheme.
In order to ensure that such employees do not lose the benefit of
pension, IBA may work out modalities and suggest amendments,
if any, required to be made in the Pension Regulations to ensure
F that these employees also get the benefit of pension.
Yours faithfully,
sd/-
(U.P. Singh)
G
Director (IR)”
23. SBI issued a circular on 10.1.2001 with respect to the
withdrawal of the application submitted under the scheme. It was decided
that the employee could withdraw the application on or before 15.2.2001
by making a written request.
H
ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 837
ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]
24. Clarification was issued on 15.1.2001 to a query raised, whether A
or not the employees on completing 15 years of pensionable service
would be entitled to pensionary benefits. Following is a relevant portion:
“3. Whether or not the employees, completing 15 years of
pensionable service as on relevant date (date of retirement under
SBIVRS), will be entitled for pension benefits? B
In this connection, we invite a reference to para 6(c) of the
Scheme forwarded under the cover of Staff Circular letter No.
CDO/81 dated 30/12/2000. The payment of pension to the
employee retiring under SBIVRS would be governed by State
Bank of India Employees Pension Fund Rules on the relevant C
date (including commuted value of pension). However, as per
existing rules, employees who have not completed 20 years of
Pensionable Service are not eligible for pension.”
It is clear from answer that the staff circular dated 30.12.2000
was reiterated. Payment of pension to an employee retiring under VRS D
would be governed by rules on the relevant date, i.e., 31.3.2001. At the
same time, the position of the existing rule was indicated that those
employees who had not completed 20 years of pensionable service were
not eligible for a pension. It was not clarified what was the meaning and
purport of para 6(c) of the scheme. It was not mentioned that an employee
would not be entitled to pension on 15 years of service as per the scheme E
approved by the Government of India and floated by the IBA and adopted
by the Central Board of SBI. The above clarification being in form of
opinion, could not be said to have caused a modification, amendment, or
cancellation of any of the clauses of VRS or resolution passed by the
Board, nor it was so stated. It was necessary to state that on completion F
of 15 years of service, employees would not be paid pension. The existing
rule position was known to everybody, whereas the scheme was framed
for providing pension on completion of 15 years of service.
25. Rule 22 of the Pension Rules of SBI as it existed up to 9.3.2001
and amended are extracted hereunder: G
Existing Rule
“22(i) A member shall be entitled to a pension under these rules
on retiring from the Bank’s service-
H
838 SUPREME COURT REPORTS [2020] 4 S.C.R.
A (a) After having completed 20 years’ pensionable service provided
that he has attained the age of 50 years or if he is in the
service of the Bank on or after 01.11.93, after having
completed ten years pensionable service provided that he has
attained the age of 58 years.
B (b) After having completed twenty years’ irrespective of the age
he shall have attained if he shall satisfy the authority competent
to sanction his retirement by approved medical certificate or
otherwise that he is incapacitated for further active service;
(c) After having completed twenty years pensionable service,
C irrespective of the age he shall have attained at his request in
writing;
(d) After twenty-five years’ pensionable service.”
Amended Rule
D “22(i) A member shall be entitled to a pension under these rules
on retiring from the Bank’s service-
(a) After having completed twenty years’ pensionable service
provided that he has attained the age of fifty years or if he is
in the service of the Bank on or after 01.11.93, after having
completed 10 years, pensionable service provided that he has
E
attained the age of fifty-eight years or if he is in the service of
the bank on or after 22.05.1998. After having completed ten
years, pensionable service provided that he has attained the
age of sixty years.
(b) After having completed twenty years’ pensionable service,
F
irrespective of the age he shall have attained if he shall satisfy
the authority competent to sanction his retirement by approved
medical certificate or otherwise that he is incapacitated for
further active service;
(c) After having completed twenty years pensionable service,
G irrespective of the age he shall have attained at his request in
writing;
(d) After twenty-five years’ pensionable service.”
H
ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 839
ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]
26. It is clear from Rule 22 that pension is admissible to an A
employee thus:
1) After having completed 20 years’ pensionable service provided
that he has attained the age of 50 years; or
2) If he is in the service of the Bank on or after 01.11.1993, after
having completed 10 years pensionable service provided that B
he has attained the age of 50 years; or
3) If he is in the service of the Bank on or after 22.05.1998, after
having completed 10 years pensionable service provided that
he has attained the age of 60 years.
C
27. Rule 22(1)(c) was incorporated in the Pension Fund Rules
w.e.f. 20.9.1986 when the bank decided inter alia to introduce VRS on
completion of 20 years of service. The unamended rule 22(i)(a) provided
the normal age of retirement to be 58 years. Thereafter, as per the
guidelines issued by the Government on 22.5.1998, the age of retirement
was increased from 58 to 60 years. Accordingly, Rule 22(i)(a) was D
proposed to be amended on 30.1.2001, and instead of 58 years, the age
of retirement of 60 years was to be incorporated. On 28.5.1998, the
Executive Committee of the Central Board of SBI pending amendment
to the related service rules adopted the age of retirement as 60 years.
The amendment was notified on 31.3.2001 and approved by the Trustees E
of the SBI Employees’ Pension Fund on 30.10.2001.
28. Similar scheme of VRS concerning nationalised banks was
implemented according to the decision of the Government of India. In
Punjab & Sind Bank, it was to remain open from 1.12.2000 to 31.12.2000;
Punjab National Bank: 1.11.2000 to 30.11.2000; Bank of India: 15.11.2000 F
to 14.12.2000; Union Bank of India: 1.12.2000 to 31.12.2000; United
Bank of India: 1.1.2001 to 31.1.2001. In SBI, the said scheme was
adopted by the Central Board on 27.12.2000.
29. The State Bank of India was constituted under the SBI Act,
1955. The nationalised banks were taken over in terms of the Banking
G
Companies (Acquisition and Transfer of Undertakings) Act, 1970. Under
the Act of 1970, the Punjab National Bank (Employees) Pension
Regulations, 1995, were framed. Regulation 28, provided pension on
attaining the age of superannuation, and Regulation 29 provided pension
on voluntary retirement on completion of 20 years of qualifying service.
H
840 SUPREME COURT REPORTS [2020] 4 S.C.R.
A Regulation 29(5), applicable to the banks mentioned above, provided
that the qualifying service of an employee retiring voluntarily under the
Regulation shall be increased by a period not exceeding five years, subject
to the condition that the total qualifying service rendered by such
employee shall not exceed 33 years.
B 30. The VRS 2000 came up for consideration before this Court in
Bank of India & Ors. v. O.P. Swarnakar & Ors., (2003) 2 SCC 721 in
the context of Regulation 29(5) of Regulations, 1995. The Court held
that the scheme is contractual and provided for pensionary benefits on
completion of 15 years of service. The decision was followed in HEC
Voluntary Retd. Employees Welfare Society v. Heavy Engineering
C Corporation Ltd., (2006) 3 SCC 708.
31. Due to introduction of Scheme, Regulation 28 of Regulations
of 1995 was proposed to be amended. It was amended in the year 2002
with a retrospective effect from 1.9.2000. By way of amendment, a
proviso has been inserted in Regulation 28 thus:
D
“28. Superannuation pension.—Superannuation pension shall
be granted to an employee who has retired on his attaining the
age of superannuation specified in the Service Regulations or
Settlements.”
E “Provided that pension shall also be granted to an employee who
opts to retire before attaining the age of superannuation, but after
having served for a minimum period of 15 years in terms of any
scheme that may be framed for the purpose by the Bank’s Board
with the concurrence of the Government.”
F (emphasis supplied)
32. The employees who opted for VRS on completion of 15 years
of service within the specified period in 2000/2001, were given the benefit
of pension. The Regulations came to be amended in 2002 with the
retrospective effect. However, the benefit under Regulation 29(5) was
not extended to the optees/employees who completed 20 years of service
G
by adding 5 years of qualifying service. Regulations 29(1) and 29(5)
applicable to the said banks are extracted hereunder:
“29. Pension on voluntary retirement.—(1) On or after the 1st
day of November 1993 at any time, after an employee has
completed twenty years of qualifying service he may, by giving
H
ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 841
ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]
notice of not less than three months in writing to the appointing A
authority retire from service:
Provided that this sub-regulation shall not apply to an employee
who is on deputation or on study leave abroad unless after having
been transferred or having returned to India he has resumed charge
of the post in India and has served for a period of not less than B
one year:
Provided further that this sub-regulation shall not apply to an
employee who seeks retirement from service for being absorbed
permanently in an autonomous body or a public sector undertaking
or company or institution or body, whether incorporated or not to C
which he is on deputation at the time of seeking voluntary
retirement:
Provided that this sub-regulation shall not apply to an employee
who is deemed to have retired in accordance with clause (1) of
Regulation 2. D
xxx
(5) The qualifying service of an employee retiring voluntarily under
this Regulation shall be increased by a period not exceeding five
years, subject to the condition that the total qualifying service
rendered by such employee shall not in any case exceed thirty- E
three years and it does not take him beyond the date of
superannuation.”
33. The scheme in question came up for consideration in O.P.
Swarnakar & Ors. (supra), in which SBI was one of appellants in C.A.
Nos.3561-65/2002, the appeals were decided by this Court by a common F
judgment. It noted that reference to pension as per rules was made for
computation of pension, and the employees who had completed 15 years
of service were to be extended the benefit of VRS 2000 along with
pension and other benefits. IBA wrote a letter dated 11.12.2000 to all
public sector banks for amending Pension Regulations, 1995. The IBA
G
mentioned that pension was to be paid to the employees as per VRS
2000. They would be eligible for pro-rata pension; as such, Regulation
28 be amended. The employees who applied for voluntary retirement
after having rendered 15 years’ service, under a special/ad hoc scheme
formulated with the specific approval of the Government and the Board
of Directors would be eligible for pro-rata pension for the period of H
842 SUPREME COURT REPORTS [2020] 4 S.C.R.
A service rendered as if they were to retire on attaining the age of
superannuation on that date. The letter made it clear that the Government
of India approved the pension to be given on completion of 15 years of
service. The scheme was for extending the benefit of pension to the
employees retiring on completion of 15 years of permanent service, and
the Government of India also desired that the IBA advised banks to
B
make necessary amendments to their pension regulations, as mentioned
in the Annexure. Thus, the essence of the VRS scheme was the benefit
of pro-rata pension as per the rules on completion of 15 years of
pensionable service.
34. It is apparent that the very fulcrum of the scheme was a felt
C need for inducting new workforce, with adequate knowledge of new
skills such as modern technology, foreign exchange, venture capital, e-
commerce, money management, etc. as pointed out by the Ministry of
Finance in its letter dated 22.5.2000. The banks were overstaffed and
for effective management and manpower planning, the desirability of
D introducing VRS was felt in order to rationalise the workforce and skill.
Hence a Committee was constituted by the Central Government. In
pursuance of report of the Committee, a policy decision was taken to
frame the VRS. The scheme applied to employees who, on the date of
the application, completed 15 years of service. The employees specified
therein were otherwise not eligible to seek voluntary retirement on
E completion of 15 years under the rules/regulations. Under the scheme
floated by the other banks, identical reliefs were admissible, as in SBI
VRS. The Scheme of Punjab National Bank is extracted hereunder:
“7. x x x “Amount of ex gratia
F An employee seeking voluntary retirement under the
Scheme will be entitled to the ex gratia amount mentioned below
in para (a) or (b), whichever is less:
(a) 60 days’ salary (pay plus stagnation increments plus
special pay plus dearness relief) for each completed year of
G service;
OR
(b) salary for the number of months of service left;
Other benefits
H
ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 843
ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]
An employee seeking voluntary retirement under the A
Scheme will be eligible for the following benefits in addition to the
ex gratia amount mentioned in para 6 above of this Scheme:
(i) Gratuity as per the Payment of Gratuity Act, 1972 or
gratuity payable under the Service Rules, as the case may be, as
per existing rules. B
(ii)(a) Pension (including commuted value of pension) as
per PNB (Employees) Pension Regulations, 1995.
OR
(b) Bank’s contribution towards PF as per existing rules. C
(iii) Leave encashment as per existing rules.”
(emphasis supplied)
35. The eligibility criteria in all the schemes, including SBI VRS,
clearly provided that employees who completed 15 years of service and
D
particular age shall be eligible to apply. The benefits to which they were
entitled, were culled out. In other banks, the pension was as per Pension
Regulation, 1995. Thus, on eligibility of an employee, admissibility of the
available reliefs in Scheme followed i.e., the amount of ex gratia and
other benefits, including pension, were to be paid as provided in the
scheme. Otherwise, there was no purpose of retiring an employee with E
15 years of service as they were not eligible for retirement as per the
rules before completion of 20 years of service in all nationalised banks
as well as SBI. A reference to the admissibility of the pension as per
rules/ regulations was made in all the VRS to mean that proportionate
pension shall be admissible as provided in rules, this Court has noted it in
F
O.P. Swarnakar (supra), thus:
“49. An offer indisputably can be made to a group of persons
collectively which is capable of being accepted individually, but
the question which has to be posed and answered is as to whether
having regard to the service jurisprudence; the principles of the
Indian Contract Act would be applicable in the instant case. It is G
the specific case of the “banks” that the Schemes had been floated
by way of contract. It does not have any statutory flavour.
Reference to the Pension Scheme framed under the Regulations
was made for computation of the pension.”
(emphasis supplied) H
844 SUPREME COURT REPORTS [2020] 4 S.C.R.
A 36. Significantly in O.P. Swarnakar (supra), this Court observed
that employees must have proceeded to apply for VRS on the basis
even though they have merely completed 15 years of service, which
was not a qualifying service, under the Pension Regulations of Bank,
they would be entitled to benefits in terms of the VRS scheme. The
Court observed thus:
B
“89. Furthermore, a large number of employees have withdrawn
their offer only when a proviso was sought to be added to
Regulation 28 aforementioned. In terms of the Scheme the
employees, who expected to get benefits of sub-regulation (4) of
Regulation 29 would be deprived therefrom. It is not in this dispute
C that the qualifying period for receiving pension was 20 years. Only
upon completion of 20 years, in terms of the statutory regulation
contained in Regulation 29, an employee could opt for voluntary
retirement, and in terms thereof, he would be entitled to the benefits
specified therein. The said Regulations had specifically been
D mentioned for the purpose of computation, which would include
invocation of sub-regulation (4) of Regulation 29, providing for
relaxation of 5 years towards the qualifying period. The employees
must have proceeded on the basis that despite the fact that they
have merely rendered 15 years of service, which was not a
qualifying service under the Regulations, they would be entitled to
E the pensionary benefits in terms of the Scheme. By introducing
the proviso to Regulation 28 pension was sought to be made pro
rata in place of full pension.”
(emphasis supplied)
F 37. In O.P. Swarnakar & Ors. (supra), it was held that the scheme
was not a part of statutory regulations. It was in the realm of contract.
That being so, the Central Government did not need to place the same
before Parliament; and secondly, if the same was a regulation, the laying-
down rule is merely directory and not mandatory. This Court relied upon
the decisions in Jan Mohd. Noor Mohd. Bagban v. State of Gujarat,
G AIR 1966 SC 385 and Atlas Cycle Industries Ltd. v. State of Haryana;
1979 (2) SCC 196 and held that the scheme could not be said to be bad
in law, thus:
“124. Firstly, the Scheme is not a part of the statutory regulation.
It was in the realm of contract. That being, so it was not necessary
H for the Central Government to place the same before Parliament.
ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 845
ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]
125. Secondly, even if the same was a regulation, the laying- A
down rule is merely a directory one and not mandatory.
126. In Jan Mohd. case, AIR 1966 SC 385, the law is stated in
the following terms: (AIR pp. 394-95, para 18)
“18. Finally, the validity of the rules framed under Bombay
Act 22 of 1939 was canvassed. By Section 26(1) of the Bombay B
Act, the State Government was authorised to make rules for the
purpose of carrying out the provisions of the Act. It was provided
by sub-section (5) that the rules made under Section 26 shall be
laid before each of the Houses of the Provincial Legislature at
the session thereof next following and shall be liable to be modified C
or rescinded by a resolution in which both Houses concur, and
such rules shall, after notification in the Official Gazette, be deemed
to have been modified or rescinded accordingly. It was urged by
the petitioner that the rules framed under Bombay Act 22 of 1939
were not placed before the Legislative Assembly or the Legislative
Council at the first session, and therefore they had no legal validity. D
The rules under Act 22 of 1939 were framed by the Provincial
Government of Bombay in 1941. At that time, there was no
Legislature in session, the Legislature having been suspended
during the emergency arising out of World War II. The session of
the Bombay Legislative Assembly was convened for the first time E
after 1941 on 20-5-1946, and that session was prorogued on
24-5-1946. The second session of the Bombay Legislative
Assembly was convened on 15-7-1946, and that of the Bombay
Legislative Council on 3-9-1946 and the rules were placed on the
Assembly Table in the second session before the Legislative
Assembly on 2-9-1946 and before the Legislative Council on 13- F
9-1946. Section 26(5) of Bombay Act 22 of 1939 does not prescribe
that the rules acquired validity only from the date on which they
were placed before the Houses of Legislature. The rules are valid
from the date on which they are made under Section 26(1). It is
true that the Legislature has prescribed that the rules shall be G
placed before the Houses of Legislature, but failure to place the
rules before the Houses of Legislature does not affect the validity
of the rules, merely because they have not been placed before
the Houses of the Legislature. Granting that the provisions of
sub-section (5) of Section 26 by reason of the failure to place the
H
846 SUPREME COURT REPORTS [2020] 4 S.C.R.
A rules before the Houses of Legislature were violated, we are of
the view that sub-section (5) of Section 26 having regard to the
purposes for which it is made, and in the context in which it occurs,
cannot be regarded as mandatory. The rules have been in operation
since the year 1941, and by virtue of Section 64 of Gujarat Act 20
of 1964, they continue to remain in operation.”
B
127. In Atlas Cycle Industries’ case, (1979) 2 SCC 196,
the same view has been reiterated.
128. We, therefore, are of the opinion that the Scheme in
question cannot be said to be bad in law.”
C 38. The Court concerning the provision of withdrawal held that
the relevant clause of the scheme created an enforceable right in case
the State Bank failed to adhere to its preferred policy.
39. In our opinion, the reference in the SBI VRS to the admissible
benefits, like pension shall be as per the pension rules, was for the purpose
D of computation of pension. It is apparent from a reading of the scheme
that proportionate pension was admissible to employees as noted in para
49 of O.P. Swarnakar & Ors. (supra). A similar expression was used
in the schemes of nationalised banks also. This Court has noted
expression in the scheme that pension as per rules to mean for
E computation of pension. The formula for computation for a pension is
provided in Rule 23 of the SBI Pension Rules.
40. It is of utmost significance that the Central Board in its meeting
dated 27.12.2000 accorded approval “for the proposals contained in the
Memorandum.” A bare perusal of the memorandum makes it clear that
F the letter of IBA dated 31.8.2000 was enclosed as part of the
memorandum submitted to the Central Board. In the memorandum, it
was mentioned “that the Government of India conveyed that they had
no objection to the banks’ placing before their respective Boards of
Director’s proposals for adopting and implementing the Voluntary
Retirement Scheme. It advised that Banks may ‘adopt’ the scheme after
G obtaining their Boards’ approval and implement it in ‘right earnest’.”
The memorandum also contained that the employees who completed 15
years of service were to be the beneficiaries of VRS as approved by the
Government of India and conveyed by the IBA. The approval by
Government of India and scheme, conveyed by IBA, was to provide for
H the benefit of pension on completion of 15 years of service. The same
ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 847
ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]
was an essential condition of the scheme. The Annexure, which was A
part of the memorandum, provided inter alia the benefit of pension,
including the commuted value of pension without any rider of completion
of 20 years period of service. Once SBI accepted the proposals contained
in the memorandum, when we gauge the scheme in the light of the
subject matter of the memorandum which was unconditionally approved,
B
it became clear and beyond the pale of doubt that in VRS (Annexure B)
inasmuch as the expression to provide the benefit of pension as per rules
was only for providing the proportionate pensionary benefit of the
qualifying service on and above 15 years, rendered by an employee.
41. The IBA advised the banks for amending the rules. The
Government of India, Ministry of Finance, also issued a letter dated C
5.9.2001 to the Bank to amend the rules. There was a proposal to amend
the rules. After the scheme was implemented in 2000, the nationalised
banks, including the Punjab National Bank, amended their rules in 2002
with retrospective effect. However, the fact remains the VRS schemes
were implemented by banks governed by the Banking Companies Act, D
1970, by making payment of pension though Regulation 28 of Regulation
of 1995 provided for 20 years of qualifying service at the relevant time.
Once a particular scheme of VRS, based on the recommendations of
Committee formed by Government of India, was formulated and floated
by IBA. In all fairness, it was required to be implemented in right earnest
in that form in which it was approved and adopted by the Board of E
Directors of SBI on 27.12.2000. In case the Board of Directors were of
the opinion that the scheme was not acceptable to them, they could have
rejected it or could have stated they reject the proposal for paying pension
on completion of 15 years of service which was the essence of a scheme
formed to reduce workforce of Bank and for achieving other objectives. F
Nonetheless, on the contrary, resolution dated 27.12.2000 indicates that
the proposals of IBA/Government was approved unconditionally. Thus,
in case it was so necessary to amend the pension rules as done by other
banks, it was incumbent upon the State Bank of India to amend its rules
either after implementation of the scheme as was done by other banks
or before giving effect to VRS. G
42. It is also significant to mention that SBI accepted the scheme
as approved by the Government and floated by IBA. In case SBI had
declined to accept or wanted to modify, it was necessary for it to take
approval of Government of India as to its scheme. As per section 49, the
H
848 SUPREME COURT REPORTS [2020] 4 S.C.R.
A Central Government has the power to make rules. Section 50 deals with
the power of Central Government to make regulations. Section 50(1)
provides that the Central Board, after consultation with the Reserve
Bank of India and with the previous sanction of the Central Government,
can make Regulations. Under Section 50(2)(o), the Regulations can be
made by the Central Board with the previous sanction of the Central
B
Government with respect to superannuation pension and other funds for
the benefit of the employees of the State Bank. Section 50(2)(o) reads:
“50. Power of Central Board to make regulations.—(1) The
Central Board may, after consultation with the Reserve Bank and
with the previous sanction of the Central Government [by
C notification in the Official Gazette,] make regulations, not
inconsistent with this Act and the rules made thereunder, to provide
for all matters for which provision is expedient for the purpose of
giving effect to the provisions of this Act.
(2) In particular, and without prejudice to the generality of
D the foregoing power, such regulations may provide for—
xxx
(o) the establishment and maintenance of superannuation
pension, provident or other funds for the benefit of the employees
E of the State Bank or of the State Bank or of the dependents of
such employees or for the purposes of the State Bank, and the
granting of superannuation allowances, annuities and pensions
payable out of any such fund;]”
43. Thus, it is apparent that the Central Board of SBI could not
F have framed a scheme different than the one approved by the Central
Government on its own, nor could have implemented it without approval
of the Central Government. In case it wanted to modify or amend the
scheme, as approved by the Government of India, it was incumbent
upon it to send its modified scheme to the Central Government for
approval. No scheme for VRS could have been framed without approval
G of the Government of India. In fact, the Central Board accepted the
proposal of IBA, as approved by the Government of India. In case SBI’s
stand is accepted, its scheme would have been valid as no modification
could have been made without approval of the Government of India. In
fact, no such modification was made, as held above.
H
ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 849
ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]
44. Once it approved the Scheme SBI being an instrumentality of A
State under Article 12, is bound by the principle of fairness and
representation made that it accepted the contents of memorandum and
the scheme floated by IBA and invited the applications based on approving
the memorandum which contained proposal of pension on rendering 15
years of permanent pensionable service, it could not later on wriggle out
B
of its obligation taking a rigmarole by claiming shelter of the Rules or by
not amending the Rules or by issuing a clarification which was fanciful,
irrational and contrary to the spirit of the resolution of the Board. It
would amount to an unfair and unreasonable action to deprive the
employees of the benefit of pension because of the decision taken by
the Central Board of Directors. C
45. SBI is bound by resolution of Central Board of Directors.
The Scheme was with the approval of the Government of India and
accepted, implemented by all the banks in true spirit except by SBI. It
cannot be permitted to act unfairly by virtue of having superior bargaining
power by issuing vague clarification to the detriment of the economic D
interest of the employees. Clarification did not have the effect of re-
writing or superseding the resolution of the Central Board nor effect of
making modifications in the resolution passed by the Central Board of
the SBI.
46. The VRS scheme was not floated by the SBI on its own E
volition. It was pursuant to an exercise that was undertaken by the IBA
in view of the recent developments of modern technology considering
the age group of the employees in the bank, the need to have a new skill,
and to rationalise the manpower; a decision was taken. It was decided
at the Government level to provide pension after completion of 15 years
of service as a special measure, the banks were bound to implement it in F
that manner or not at all. The Central Board of Directors of the SBI
accepted the VRS proposal of Government and IBA without any
reservation of not providing pension along with other benefits, as mandated
in the VRS scheme. The action of the instrumentality of the State cannot
be violative of Article 14. It cannot be permitted to act arbitrarily. Articles G
15 and 16 provide for equality and provide for an umbrella against
discrimination.
47. Though the Deputy General Manager was authorised by the
Central Board of Directors to amend, modify or cancel the VRS. The
Rules were amended by other banks later in 2002. It was not stated in H
850 SUPREME COURT REPORTS [2020] 4 S.C.R.
A answer to the query that under the VRS scheme, a person who has
rendered 15 years of qualifying service would not be entitled to a pension.
Nor it was so stated in resolution dated 27.12.2000 of the Central Board
of SBI. That apart, Deputy General Manager tried to interpret VRS
scheme in isolation without considering what was approved by the Board.
Not only the scheme but also the memorandum have to be read together
B
to understand resolution of Board. Once the memorandum containing
the IBAs proposal of providing pension was approved in absolute terms,
the clarification could not be of any value to dilute the otherwise clear
and unambiguous resolution of the Board of Directors. The Deputy
General Manager did not have any such wide and arbitrary power to
C defeat the claim of the employees for pension on completion of 15 years
of permanent service, which was their right. The action of D.G.M. could
not be said to be in accordance with the resolution. The pension was the
essence of the scheme, depriving it could not be said to be authorised,
such action can only be termed as unfair and unreasonable and patently
violative of Articles 14, 16, and 21 of the Constitution of India.
D
48. Yet another aspect which cannot be lost sight is that the bank
mentioned in the scheme that the benefit would be admissible as per the
rule which prevails on the appointed day, i.e., 31.3.2001. Thus, it is
apparent that when VRS scheme was floated, it was in contemplation
of amendment of rules which was suggested by the IBA and the
E Government of India in its communication dated 5.9.2001 so that
employees were not deprived of the benefit of pension.
49. The question arises in case the bank accepts the proposal of
VRS, and does not alter its rules, can employees be deprived of the
benefit of pension in such an unconscionable manner over an event on
F which they had no control. It would be nothing, but an outcome of unfair
and arbitrary act in case the SBI never intended to act upon the scheme
it ought not to have accepted it, and once it approved VRS, it was
incumbent upon it to amend its rule, if necessary, as was done by other
banks in 2002 after scheme worked out in the year 2000. Even otherwise
G once it accepted the proposal of the Government of India, it would be
violative of provisions of Articles 14 and 16 to permit it to wriggle out of
its obligation under the guise that the bank did not amend its rules or
pension was not admissible as per existing rules, mainly when the scheme
provided for eligibility for pension on completion of 15 years, that formed
independent contract. If the bank is permitted to get rid of the scheme
H
ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 851
ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]
due to Rule position, then the scheme itself would become void and A
unenforceable. Bank cannot act in a fanciful manner, particularly with
respect to retirement under VRS which was contractual and deny benefit
of pension, a right accrued to the employees for receiving the pension in
view of the memorandum and the resolution passed by the Central Board
of Directors adopting memorandum and the SBI-VRS.
B
50. (a). The rights under contract cannot be taken away, and they
become enforceable by a court of law. Bank cannot be permitted to
make a representation and later on wriggle out of its obligation. It is not
permissible to make a “misrepresentation”. Under section 19 of the
Contract Act, when consent is obtained by coercion, fraud, or
‘misrepresentation,’ the agreement is voidable at the option of the C
aggrieved party. In Central Inland Water Transport Corporation Ltd.
& Anr. v. Brojo Nath Ganguly & Anr., (1986) 3 SCC 156, this Court
considered the contract of employment between the Central Inland Water
Transport Corporation and its employees and also the rules. In that
context, observed thus: D
“75.Under Section 19 of the Indian Contract Act, when consent
to an agreement is caused by coercion, fraud or misrepresentation,
the agreement is a contract voidable at the option of the party
whose consent was so caused. It is not the case of either of the
contesting respondents that there was any coercion brought to E
bear upon him or that any fraud or misrepresentation had been
practiced upon him. Under Section 19-A, when consent to an
agreement is caused by undue influence, the agreement is a
contract voidable at the option of the party whose consent was so
caused and the court may set aside any such contract either
absolutely or if the party who was entitled to avoid it has received F
any benefit thereunder, upon such terms and conditions as to the
court may seem just. Sub-section (1) of Section 16 defines “Undue
influence” as follows:
“16. ‘Undue influence’ defined.—(1) A contract is said to
be induced by ‘undue influence’ where the relations subsisting G
between the parties are such that one of the parties is in a position
to dominate the will of the other and uses that position to obtain an
unfair advantage over the other.”
H
852 SUPREME COURT REPORTS [2020] 4 S.C.R.
A The material provisions of sub-section (2) of Section 16
are as follows:
“(2) In particular and without prejudice to the generality of
the foregoing principle, a person is deemed to be in a position to
dominate the will of another—
B (a) where he holds a real or apparent authority over the
other ....”
We need not trouble ourselves with the other sections of
the Indian Contract Act except Sections 23 and 24. Section 23
states that the consideration or object of an agreement is lawful
C unless inter alia the court regards it as opposed to public policy.
This section further provides that every agreement of which the
object or consideration is unlawful is void. Under Section 24, if
any part of a single consideration for one or more objects, or
anyone or any part of any one of several considerations for a
D single object is unlawful, the agreement is void. The agreement is,
however, not always void in its entirety for it is well settled that if
several distinct promises are made for one and the same lawful
consideration, and one or more of them be such as the law will
not enforce, that will not of itself prevent the rest from being
enforceable. The general rule was stated by Willes, J., in Pickering
E v. Ilfracombe Ry. Co. (1868) LR 3 CP 235 (at p. 250) as follows:
“The general rule is that, where you cannot sever the illegal
from the legal part of a covenant, the contract is altogether void;
but where you can sever them, whether the illegality be created
by statute or by the common law, you may reject the bad part and
F retain the good.”
(emphasis supplied)
(b). In Brojo Nath Ganguly (supra), this Court considered the
concept of unconscionable bargain and as to actions showing no regard
for conscience; irreconcilable with what is right or reasonable, observed
G
thus:
“76. Under which head would an unconscionable bargain fall? If
it falls under the head of undue influence, it would be voidable but
if it falls under the head of being opposed to public policy, it would
be void. No case of the type before us appears to have fallen for
H
ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 853
ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]
decision under the law of contracts before any court in India nor A
has any case on all fours of a court in any other country been
pointed out to us. The word “unconscionable” is defined in the
Shorter Oxford English Dictionary, Third Edition, Volume II,
page 2288, when used with reference to actions, etc. as “showing
no regard for conscience; irreconcilable with what is right or
B
reasonable.” An unconscionable bargain would, therefore, be one
which is irreconcilable with what is right or reasonable.”
(emphasis supplied)
(c). Chitty on Contracts was referred in Brojo Nath Ganguly
(supra) about the old ideas of freedom of contract in modern times, 25th C
Edn., Vol. 1, para 4, Chitty observed:
“79. In this connection, it is useful to note what Chitty has to say
about the old ideas of freedom of contract in modern times. The
relevant passages are to be found in Chitty on Contracts, 25th
Edn., Vol. I, in paragraph 4, and are as follows: D
“These ideas have to a large extent lost their appeal today.
‘Freedom of contract,’ it has been said, ‘is a reasonable social
ideal only to the extent that equality of bargaining power between
contracting parties can be assumed, and no injury is done to the
economic interests of the community at large.’ Freedom of contract E
is of little value when one party has no alternative between
accepting a set of terms proposed by the other or doing without
the goods or services offered. Many contracts entered into by
public utility undertakings and others take the form of a set of
terms fixed in advance by one party and not open to discussion by
the other. These are called ‘contracts d’adhesion’ by French F
lawyers. Traders frequently contract, not on individually negotiated
terms, but on those contained in a standard form of contract settled
by a trade association. And the terms of an employee’s contract
of employment may be determined by agreement between his
trade union and his employer, or by a statutory scheme of G
employment. Such transactions are nevertheless contracts
notwithstanding that freedom of contract is to a great extent lacking.
Where freedom of contract is absent, the disadvantages to
consumers or members of the public have, to some extent, been
offset by administrative procedures for consultation, and by
H
854 SUPREME COURT REPORTS [2020] 4 S.C.R.
A legislation. Many statutes introduce terms into contracts which
the parties are forbidden to exclude, or declare that certain
provisions in a contract shall be void. And the courts have developed
a number of devices for refusing to implement exemption clauses
imposed by the economically stronger party on the weaker,
although they have not recognized in themselves any general power
B
(except by statute) to declare broadly that an exemption clause
will not be enforced unless it is reasonable. Again, more recently,
certain of the judges appear to have recognized the possibility of
relief from contractual obligations on the ground of ‘inequality of
bargaining power.’”
C What the French call “contracts d’adhesion,” the
American call “adhesion contracts” or “contracts of adhesion.”
An “adhesion contract” is defined in Black’s Law Dictionary.
5th Edn., at page 38, as follows:
“Adhesion contract.—Standardized contract form offered
D to consumers of goods and services on essentially ‘take it or leave
it’ basis without affording consumer realistic opportunity to bargain
and under such conditions that consumer cannot obtain desired
product or services except by acquiescing in form contract.
Distinctive feature of adhesion contract is that weaker party has
E no realistic choice as to its terms. Not every such contract is
unconscionable.”
80. The position under the American law is stated in Reinstatement
of the Law — Second as adopted and promulgated by the
American Law Institute, Volume II which deals with the law of
F contracts, in Section 208 at page 107, as follows:
Ҥ 208. Unconscionable Contract or Term
If a contract or term thereof is unconscionable at the time the
contract is made a court may refuse to enforce the contract, or
may enforce the remainder of the contract without the
G unconscionable term, or may so limit the application of any
unconscionable term as to avoid any unconscionable result.”
In the Comments given under that section, it is stated at page 107:
“Like the obligation of good faith and fair dealing (§ 205),
the policy against unconscionable contracts or terms applies
H
ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 855
ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]
to a wide variety of types of conduct. The determination that a A
contract or term is or is not unconscionable is made in the light of
its setting, purpose and effect. Relevant factors include
weaknesses in the contracting process like those involved in more
specific rules as to contractual capacity, fraud and other invalidating
causes; the policy also overlaps with rules which render particular
B
bargains or terms unenforceable on grounds of public policy.
Policing against unconscionable contracts or terms has
sometimes been accomplished by adverse construction of
language, by manipulation of the rules of offer and acceptance or
by determinations that the clause is contrary to public policy
or to the dominant purpose of the contract. Uniform Commercial C
Code § 2-302 Comment 1 .... A bargain is not unconscionable
merely because the parties to it are unequal in bargaining position,
nor even because the inequality results in an allocation of risks to
the weaker party. But gross inequality of bargaining power,
together with terms unreasonably favourable to the stronger
D
party, may confirm indications that the transaction involved
elements of deception or compulsion, or may show that the weaker
party had no meaningful choice, no real alternative, or did not in
fact assent or appear to assent to the unfair terms.”
(emphasis supplied)
E
There is a statute in the United States called the Universal
Commercial Code, which applies to contracts relating to sales of
goods. Though this statute is inapplicable to contracts not involving
sales of goods, it has proved very influential in what is called in
the United States, “non-sales” cases. It has many times been
used either by analogy or because it was felt to embody a generally F
accepted social attitude of fairness going beyond its statutory
application to sales of goods. In the Reporter’s Note to said Section
208, it is stated at p. 112:
“It is to be emphasized that a contract of adhesion is not
unconscionable per se, and that all unconscionable contracts are G
not contracts of adhesion. Nonetheless, the more standardised
the agreement and the less a party may bargain meaningfully,
the more susceptible the contract or a term will be to a claim
of unconscionability.”
(emphasis supplied) H
856 SUPREME COURT REPORTS [2020] 4 S.C.R.
A The position has been thus summed up by John R. Peden in ‘The
Law of Unjust Contracts’ published by Butterworths in 1982, at
pages 28-29:
“... Unconscionability represents the end of a cycle
commencing with the Aristotelian concept of justice and the Roman
B law laesio enormis, which in turn formed the basis for the
medieval church’s concept of a just price and condemnation of
usury. These philosophies permeated the exercise, during the
seventeenth and eighteenth centuries, of the Chancery court’s
discretionary powers under which it upset all kinds of unfair
transactions. Subsequently the movement towards economic
C individualism in the nineteenth century hardened the exercise of
these powers by emphasising the freedom of the parties to make
their own contract. While the principle of pacta sunt servanda
held dominance, the consensual theory still recognized exceptions
where one party was overborne by a fiduciary, or entered a
D contract under duress or as the result of fraud. However, these
exceptions were limited and had to be strictly proved.
It is suggested that the judicial and legislative trend during
the last 30 years in both civil and common law jurisdictions has
almost brought the wheel full circle. Both courts and parliaments
E have provided greater protection for weaker parties from harsh
contracts. In several jurisdictions this included a general power to
grant relief from unconscionable contracts, thereby providing a
launching point from which the courts have the opportunity to
develop a modern doctrine of unconscionability. American
decisions on Article 2.302 of the UCC have already gone some
F distance into this new arena....”
The expression “laesio enormis” used in the above passage
refers to “laesio ultra dimidium vel enormis” which in Roman
law meant the injury sustained by one of the parties to an onerous
contract when he had been overreached by the other to the extent
G of more than one-half of the value of the subject-matter, as for
example, when a vendor had not received half the value of property
sold, or the purchaser had paid more than double value. The maxim
“pacta sunt servanda” referred to in the above passage, means
“contracts are to be kept.”
H (emphasis supplied)
ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 857
ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]
This Court held that due to inequality of bargaining power, A
unreasonable terms, unreasonable favour to the stronger party may
involve an element of deception or compulsion, or may show that the
weaker party had no meaningful choice. The Court in Brojo Nath
Ganguly (supra) also observed that in the sphere of the law of contract,
the test of reasonableness or fairness has emerged. Even an unreasonable
B
clause cannot be enforced as that would be unconscionable.
Here the reasonable construction in the matter is that the pension
is clearly admissible as per the resolution passed by the Central Board
of Directors of SBI, which is sought to be denied, it was for SBI to
amend Rules. Such an action would be unconscionable, and courts cannot
be said to be powerless in such a situation to enforce the SBI VRS with C
an obligation to make payment of pension.
(d). This Court considered the enforcement of unreasonable
contracts and enforceability thereof in Brojo Nath Ganguly (supra)
thus:
D
“83. Yet another theory which has made its emergence in recent
years in the sphere of the law of contracts is the test of
reasonableness or fairness of a clause in a contract where there
is inequality of bargaining power. Lord Denning, MR, appears to
have been the propounder, and perhaps the originator —at least
in England, of this theory. In Gillespie Brothers & Co. Ltd. v. E
Roy Bowles Transport Ltd., (1973) QB 400, where the question
was whether an indemnity clause in a contract, on its true
construction, relieved the indemnifier from liability arising to the
indemnified from his own negligence, Lord Denning said (at pages
415-416): F
“The time may come when this process of ‘construing’ the
contract can be pursued no further. The words are too clear to
permit of it. Are the courts then powerless? Are they to permit
the party to enforce his unreasonable clause, even when it is
so unreasonable, or applied so unreasonably, as to be G
unconscionable? When it gets to this point, I would say, as I said
many years ago:
‘there is the vigilance of the common law which, while
allowing freedom of contract, watches to see that it is not abused’:
John Lee & Son (Grantham) Ltd. v. Railway Executive, (1949)
H
2 All ER 581.
858 SUPREME COURT REPORTS [2020] 4 S.C.R.
A It will not allow a party to exempt himself from his liability
at common law when it would be quite unconscionable for him to
do so.”
(emphasis supplied)
In the above case, the Court of Appeal negatived the defense
B of the indemnifier that the indemnity clause did not cover the
negligence of the indemnified. It was in Lloyds Bank Ltd. v. Bundy
(1974) 3 All ER 757 that Lord Denning first clearly enunciated his
theory of “inequality of bargaining power.” He began his discussion
on this part of the case by stating (at page 763) :
C “There are cases in our books in which the courts will set
aside a contract, or a transfer of property, when the parties
have not met on equal terms, when the one is so strong in
bargaining power and the other so weak that, as a matter of
common fairness, it is not right that the strong should be
D allowed to push the weak to the wall. Hitherto those exceptional
cases have been treated each as a separate category in itself.
But I think the time has come when we should seek to find a
principle to unite them. I put on one side contracts or transactions
which are voidable for fraud or misrepresentation or mistake. All
those are governed by settled principles. I go only to those where
E there has been inequality of bargaining power, such as to merit
the intervention of the court.”
(emphasis supplied)
He then referred to various categories of cases and
F ultimately deduced therefrom a general principle in these words
(at page 765):
“Gathering all together, I would suggest that through all
these instances there runs a single thread. They rest on
‘inequality of bargaining power.’ By virtue of it, the English law
gives relief to one who, without independent advice, enters into a
G
contract on terms which are very unfair or transfers property for
a consideration which is grossly inadequate, when his bargaining
power is grievously impaired by reason of his own needs or desires,
or by his own ignorance or infirmity, coupled with undue influences
or pressures brought to bear on him by or for the benefit of the
H
ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 859
ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]
other. When I use the word ‘undue,’ I do not mean to suggest that A
the principle depends on proof of any wrongdoing. The one who
stipulates for an unfair advantage may be moved solely by his
own self-interest, unconscious of the distress he is bringing to the
other. I have also avoided any reference to the will of the one
being ‘dominated’ or ‘overcome’ by the other. One who is in
B
extreme need may knowingly consent to a most improvident
bargain, solely to relieve the straits in which he finds himself.
Again, I do not mean to suggest that every transaction is saved by
independent advice. But the absence of it may be fatal. With these
explanations, I hope this principle will be found to reconcile the
cases.” C
(emphasis supplied)
(e). The Court clearly held that the contracts, which are the
outcome of misrepresentation, cannot be enforced, and inequality of
bargaining power merit the intervention of the court. In A. Schroeder
Music Publishing Co. Ltd. v. Macaulay (formerly Instone) (1974) 1 D
WLR 1308, Lord Diplock made the following observations at pp. 1315-
16 thus:
“84. …. “My Lords, the contract under consideration in this appeal
is one whereby the respondent accepted restrictions upon the way
in which he would exploit his earning power as a songwriter for E
the next ten years. Because this can be classified as a contract in
restraint of trade the restrictions that the respondent accepted fell
within one of those limited categories of contractual promises in
respect of which the courts still retain the power to relieve the
promisor of his legal duty to fulfill them. In order to determine F
whether this case is one in which that power ought to be exercised,
what your Lordships have in fact been doing has been to assess
the relative bargaining power of the publisher and the songwriter
at the time the contract was made and to decide whether the
publisher had used his superior bargaining power to exact from
the songwriter promises that were unfairly onerous to him. Your G
Lordships have not been concerned to inquire whether the public
have in fact been deprived of the fruit of the song writer’s talents
by reason of the restrictions, nor to assess the likelihood that they
would be so deprived in the future if the contract were permitted
to run its full course. H
860 SUPREME COURT REPORTS [2020] 4 S.C.R.
A It is, in my view, salutary to acknowledge that in refusing to
enforce provisions of a contract whereby one party agrees for
the benefit of the other party to exploit or to refrain from exploiting
his own earning power, the public policy which the court is
implementing is not some 19th century economic theory about the
benefit to the general public of freedom of trade, but the protection
B
of those whose bargaining power is weak against being forced by
those whose bargaining power is stronger to enter into bargains
that are unconscionable. Under the influence of Bentham and of
laissez faire the courts in the 19th century abandoned the practice
of applying the public policy against unconscionable bargains to
C contracts generally, as they had formerly done to any contract
considered to be usurious; but the policy survived in its application
to penalty clauses and to relief against forfeiture and also to the
special category of contracts in restraint of trade. If one looks at
the reasoning of 19th-century judges in cases about contracts in
restraint of trade one finds lip service paid to current economic
D
theories, but if one looks at what they said in the light of what they
did, one finds that they struck down a bargain if they thought it
was unconscionable as between the parties to it and upheld it if
they thought that it was not.
So I would hold that the question to be answered as respects
E a contract in restraint of trade of the kind with which this appeal
is concerned is: ‘Was the bargain fair?’ The test of fairness is,
no doubt, whether the restrictions are both reasonably
necessary for the protection of the legitimate interests of the
promisee and commensurate with the benefits secured to the
F promisor under the contract. For the purpose of this test, all
the provisions of the contract must be taken into
consideration.”
(f). A term which exempts the stronger party from his ordinary
common law liability should not be given effect except when it is
G reasonable, as observed in Levison v. Patent Steam Carpet Co. Ltd.,
(1949) 2 All ER 581 at 584 relied upon in Brojo Nath Ganguly (supra)
thus:
“85. The observations of Lord Denning, M.R., in Levison
v. Patent Steam Carpet Co. Ltd. are also useful and require to be
H quoted. These observations are as follows (at page 79) :
ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 861
ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]
“In such circumstances as here the Law Commission in A
1975 recommended that a term which exempts the stronger party
from his ordinary common law liability should not be given effect
except when it is reasonable: see The Law Commission and the
Scottish Law Commission Report, Exemption Clauses, Second
Report (1975) (August 5, 1975), Law Com. No. 69 (H.C. 605),
B
pp. 62, 174; and there is a Bill now before Parliament, which
gives effect to the test of reasonableness. This is a gratifying
piece of law reform: but I do not think we need wait for that Bill
to be passed into law. You never know what may happen to a Bill.
Meanwhile, the common law has its own principles ready to hand.
In Gillespie Bros. & Co. Ltd. v. Roy Bowles Transport Ltd. C
(1973) QB 400, I suggested that an exemption or limitation clause
should not be given effect if it was unreasonable, or if it would be
unreasonable to apply it in the circumstances of the case. I see no
reason why this should not be applied today, at any rate in contracts
in standard forms where there is inequality of bargaining power.”
D
(g). Courts have to construe the contracts according to the tenor.
In this regard, in Brojo Nath Ganguly (supra), the Court considered
the question thus:
“87. In Photo Production Ltd. v. Securicor Transport
Ltd. (1980) AC 827, a case before the Unfair Contract Terms E
Act, 1977, was enacted, the House of Lords upheld an exemption
clause in a contract on the defendants’ printed form containing
standard conditions. The decision appears to proceed on the ground
that the parties were businessmen and did not possess unequal
bargaining power. The House of Lords did not, in that case, reject
the test of reasonableness or fairness of a clause in a contract F
where the parties are not equal in bargaining position. On the
contrary, the speeches of Lord Wilberforce, Lord Diplock, and
Lord Scarman would seem to show that the House of Lords in a
fit case would accept that test. Lord Wilberforce, in his speech,
after referring to the Unfair Contract Terms Act, 1977, said (at G
page 843) :
“This Act applies to consumer contracts and those based
on standard terms and enables exception clauses to be applied
with regard to what is just and reasonable. It is significant that
Parliament refrained from legislating over the whole field of H
862 SUPREME COURT REPORTS [2020] 4 S.C.R.
A contract. After this Act, in commercial matters generally, when
the parties are not of unequal bargaining power, and when
risks are normally borne by insurance, not only is the case for
judicial intervention undemonstrated, but there is everything to be
said, and this seems to have been Parliament’s intention, for leaving
the parties free to apportion the risks as they think fit and for
B
respecting their decisions.”
(emphasis supplied)
Lord Diplock said (at page 850-51):
“Since the obligations implied by law in a commercial
C contract are those which, by judicial consensus over the years or
by Parliament in passing a statute, have been regarded as
obligations which a reasonable businessman would realise
that he was accepting when he entered into a contract of a
particular kind, the court’s view of the reasonableness of any
D departure from the implied obligations which would be involved in
construing the express words of an exclusion clause in one sense
that they are capable of bearing rather than another, is a relevant
consideration in deciding what meaning the words were intended
by the parties to bear.”
E (emphasis supplied)
Lord Scarman, while agreeing with Lord Wilberforce,
described (at page 853) the action out of which the appeal before
the House had arisen as “a commercial dispute between parties
well able to look after themselves” and then added: “In such a
F situation what the parties agreed (expressly or impliedly) is what
matters, and the duty of the courts is to construe their contract
according to its tenor.”
88. As seen above, apart from judicial decisions, the United
States and the United Kingdom have statutorily recognised, at
least in certain areas of the law of contracts, that there can be
G
unreasonableness (or lack of fairness, if one prefers that phrase)
in a contract or a clause in a contract where there is inequality of
bargaining power between the parties although arising out of
circumstances not within their control or as a result of situations
not of their creation. Other legal systems also permit judicial review
H of a contractual transaction entered into in similar circumstances.
ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 863
ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]
For example, Section 138(2) of the German Civil Code provides A
that a transaction is void “when a person” exploits “the distressed
situation, inexperience, lack of judgmental ability, or grave
weakness of will of another to obtain the grant or promise of
pecuniary advantages ... which are obviously disproportionate to
the performance given in return”. The position, according to the
B
French law, is very much the same.”
(h). In Brojo Nath Ganguly (supra), it was pointed out what
court should do in such a matter thus:
“89. Should then our courts not advance with the times?
Should they still continue to cling to outmoded concepts and C
outworn ideologies? Should we not adjust our thinking caps to
match the fashion of the day? Should all jurisprudential
development pass us by, leaving us floundering in the sloughs of
19th-century theories? Should the strong be permitted to push the
weak to the wall? Should they be allowed to ride roughshod over
the weak? Should the courts sit back and watch supinely while D
the strong trample underfoot the rights of the weak? We have a
Constitution for our country. Our judges are bound by their oath
to “uphold the Constitution and the laws.” The Constitution was
enacted to secure to all the citizens of this country social and
economic justice. Article 14 of the Constitution guarantees to all E
persons equality before the law and the equal protection of the
laws. The principle deducible from the above discussions on this
part of the case is in consonance with right and reason, intended
to secure social and economic justice and conforms to the mandate
of the great equality clause in Article 14. This principle is that the
courts will not enforce and will, when called upon to do so, strike F
down an unfair and unreasonable contract, or an unfair and
unreasonable clause in a contract, entered into between parties
who are not equal in bargaining power. It is difficult to give an
exhaustive list of all bargains of this type. No court can visualize
the different situations which can arise in the affairs of men. One G
can only attempt to give some illustrations. For instance, the above
principle will apply where the inequality of bargaining power is
the result of the great disparity in the economic strength of the
contracting parties. It will apply where the inequality is the result
of circumstances, whether of the creation of the parties or not. It
H
864 SUPREME COURT REPORTS [2020] 4 S.C.R.
A will apply to situations in which the weaker party is in a position in
which he can obtain goods or services or means of livelihood only
upon the terms imposed by the stronger party or go without them.
It will also apply where a man has no choice, or rather no
meaningful choice, but to give his assent to a contract or to sign
on the dotted line in a prescribed or standard form or to accept a
B
set of rules as part of the contract, however unfair, unreasonable
and unconscionable a clause in that contract or form or rules may
be. This principle, however, will not apply where the bargaining
power of the contracting parties is equal or almost equal. This
principle may not apply where both parties are businessmen, and
C the contract is a commercial transaction. In today’s complex world
of giant corporations with their vast infrastructural organizations
and with the State through its instrumentalities and agencies
entering into almost every branch of industry and commerce, there
can be myriad situations which result in unfair and unreasonable
bargains between parties possessing wholly disproportionate and
D
unequal bargaining power. These cases can neither be enumerated
nor fully illustrated. The court must judge each case on its own
facts and circumstances.”
(i). The Court in Brojo Nath Ganguly (supra) held that the
contract, which affected a large number of persons if they are
E unconscionable, unfair, and unreasonable, the contract is voidable. The
court would not compel each person with whom the party with superior
bargaining power had contracted to go to court to adjudge the contract
voidable and would result in a multiplicity of litigation. It observed:
“91. Is a contract of the type mentioned above to be adjudged
F voidable or void? If it was induced by undue influence, then under
Section 19-A of the Indian Contract Act, it would be voidable. It
is, however, rarely that contracts of the types to which the principle
formulated by us above applies are induced by undue influence as
defined by Section 16(1) of the Indian Contract Act, even though
G at times they are between parties one of whom holds a real or
apparent authority over the other. In the vast majority of cases,
however, such contracts are entered into by the weaker party
under pressure of circumstances, generally economic, which
results in inequality of bargaining power. Such contracts will not
fall within the four corners of the definition of “undue influence”
H
ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 865
ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]
given in Section 16(1). Further, the majority of such contracts are A
in a standard or prescribed form or consist of a set of rules. They
are not contracts between individuals containing terms meant for
those individuals alone. Contracts in prescribed or standard forms
or which embody a set of rules as part of the contract are entered
into by the party with superior bargaining power with a large
B
number of persons who have far less bargaining power or no
bargaining power at all. Such contracts which affect a large
number of persons or a group or groups of persons, if they are
unconscionable, unfair, and unreasonable, are injurious to the public
interest. To say that such a contract is only voidable would be to
compel each person with whom the party with superior bargaining C
power had contracted to go to court to have the contract adjudged
voidable. This would only result in multiplicity of litigation, which
no court should encourage and would also not be in the public
interest. Such a contract or such a clause in a contract ought,
therefore, to be adjudged void. While the law of contracts in
D
England is mostly judge-made, the law of contracts in India is
enacted in a statute, namely, the Indian Contract Act, 1872. In
order that such a contract should be void, it must fall under one of
the relevant sections of the Indian Contract Act. The only relevant
provision in the Indian Contract Act, which can apply is Section
23, when it states that “The consideration or object of an agreement E
is lawful, unless ... the court regards it as ... opposed to public
policy.”
(j). The Court also considered the “public policy”. The same is
not the policy of a particular Government. It connotes some matter which
concerns the public good and the public interest. Action has to be F
subservient to public policy. This Court in the context of Contract Act
and Public Policy made the following observations:
“92. The Indian Contract Act does not define the expression
“public policy” or “opposed to public policy.” From the very nature
of things, the expressions “public policy,””opposed to public policy,” G
or “contrary to public policy” are incapable of precise definition.
Public policy, however, is not the policy of a particular government.
It connotes some matter which concerns the public good and the
public interest. The concept of what is for the public good or in
the public interest or what would be injurious or harmful to the
public good or the public interest has varied from time to time. As H
866 SUPREME COURT REPORTS [2020] 4 S.C.R.
A new concepts take the place of old, transactions which were once
considered against public policy are now being upheld by the courts,
and similarly, where there has been a well-recognized head of
public policy, the courts have not shirked from extending it to new
transactions and changed circumstances and have at times not
even flinched from inventing a new head of public policy. There
B
are two schools of thought— “the narrow view” school and “the
broad view” school. According to the former, courts cannot create
new heads of public policy, whereas the latter countenances judicial
law-making in this area. The adherents of “the narrow view”
school would not invalidate a contract on the ground of public
C policy unless that particular ground had been well-established by
authorities. Hardly ever has the voice of the timorous spoken more
clearly and loudly than in these words of Lord Davey in Janson
v. Driefontein Consolidated Gold Mines Ltd.: “Public policy is
always an unsafe and treacherous ground for legal decision.” That
was in the year 1902. Seventy-eight years earlier, Burrough, J., in
D
Richardson v. Mellish, (1824-34) All ER 258, described public
policy as “a very unruly horse, and when once you get astride it
you never know where it will carry you.” The Master of the Rolls,
Lord Denning, however, was not a man to shy away from
unmanageable horses and in words which conjure up before our
E eyes the picture of the young Alexander the Great taming
Bucephalus, he said in Enderby Town Football Club Ltd. v.
Football Assn. Ltd. (1971) Ch 591: “With a good man in the
saddle, the unruly horse can be kept in control. It can jump over
obstacles.” Had the timorous always held the field, not only the
doctrine of public policy but even the Common Law or the principles
F
of Equity would never have evolved. Sir William Holdsworth in
his “History of English Law,” Volume III, page 55, has said:
“In fact, a body of law like the common law, which has
grown up gradually with the growth of the nation, necessarily
acquires some fixed principles, and if it is to maintain these
G principles, it must be able, on the ground of public policy or some
other like ground, to suppress practices which, under ever new
disguises, seek to weaken or negative them.”
It is thus clear that the principles governing public policy
must be and are capable, on proper occasion, of expansion or
H
ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 867
ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]
modification. Practices which were considered perfectly normal A
at one time have today become obnoxious and oppressive to public
conscience. If there is no head of public policy which covers a
case, then the court must in consonance with public conscience
and in keeping with public good and public interest declare such
practice to be opposed to public policy. Above all, in deciding any
B
case which may not be covered by authority, our courts have
before them the beacon light of the Preamble to the Constitution.
Lacking precedent, the court can always be guided by that light
and the principles underlying the Fundamental Rights and the
Directive Principles enshrined in our Constitution.
93. The normal rule of Common Law has been that a party who C
seeks to enforce an agreement which is opposed to public policy
will be non-suited. The case of A. Schroeder Music Publishing
Co. Ltd. v. Macaulay (1974) 1 WLR 1308, however, establishes
that where a contract is vitiated as being contrary to public policy,
the party adversely affected by it can sue to have it declared D
void. The case may be different, where the purpose of the contract
is illegal or immoral. In Kedar Nath Motani v. Prahlad Rai, AIR
1960 SC 213, reversing the High Court and restoring the decree
passed by the trial court declaring the appellants’ title to the lands
in suit and directing the respondents who were the appellants’
benamidars to restore possession, this Court, after discussing the E
English and Indian law on the subject, said: (at page 873) :
“The correct position in law, in our opinion, is that what one
has to see is whether the illegality goes so much to the root of the
matter that the plaintiff cannot bring his action without relying
upon the illegal transaction into which he had entered. If the illegality F
be trivial or venial, as stated by Williston and the plaintiff is not
required to rest his case upon that illegality, then public policy
demands that the defendant should not be allowed to take
advantage of the position. A strict view, of course, must be taken
of the plaintiff’s conduct, and he should not be allowed to G
circumvent the illegality by resorting to some subterfuge or by
misstating the facts. If, however, the matter is clear and the illegality
is not required to be pleaded or proved as part of the cause of
action, and the plaintiff recanted before the illegal purpose was
achieved, then, unless it be of such a gross nature as to outrage
H
868 SUPREME COURT REPORTS [2020] 4 S.C.R.
A the conscience of the court, the plea of the defendant should not
prevail.”
The types of contracts to which the principle formulated by us
above applies are not contracts which are tainted with illegality but are
contracts which contain terms which are so unfair and unreasonable
B that they shock the conscience of the court. They are opposed to public
policy and require to be adjudged void.”
51. This Court also considered the law of contract and its
interpretation in changing times in Delhi Transport Corporation v.
D.T.C. Mazdoor Congress & Ors., (1991) Supp 1 SCC 600 thus:
C “279. In paragraph 4 of Chitty on Contracts (25th edn.,
vol. 1) it is stated that “freedom of contract is a reasonable social
ideal only to the extent that equality of bargaining power between
contracting parties can be assumed and no injury is done to the
economic interest of the community at large.”
D 280. In Anson’s Law of Contract at pages 6 and 7 stated
the scope of freedom of contract in the changing circumstances
thus:
“Today the position is seen in a very different light. Freedom
of contract is a reasonable social ideal only to the extent that
E equality of bargaining power between contracting parties can be
assumed, and no injury is done to the economic interests of the
community at large. In the more complicated social and industrial
conditions of a collectivist society, it has ceased to have much
idealistic attraction. It is now realised that economic equality often
F does not exist in any real sense and that individual interests have
to be made to subserve those of the community hence there has
been a fundamental change both in our social outlook and in the
policy of the legislature towards contract and the law today
interferes at numerous points with the freedom of the parties to
make what contract they like. The relation between employers
G and employed, for example, have been regulated by statutes
designed to ensure that the employee’s condition of work are safe,
that he is properly protected against redundancy, and that he knows
his terms of service. The public has been protected against
economic pressure by such measures as the Rent Acts, the Supply
of Goods (Implied Terms) Act, the Consumer Credit Act, and
H
ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 869
ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]
other similar enactments. These legislative provisions will override A
any contrary terms which the parties may make for themselves.
Further, the legislature has intervened in the Restrictive Trade
Practices Act, 1956, and the Fair Trading Act, 1973 to promote
competition in industry and to safeguard the interests of consumers.
This intervention is specially necessary today when most contracts
B
entered by ordinary people are not the result of individual
negotiation. It is not possible for a private person to settle the
terms of his agreement with a British Railways Board or with a
local electricity authority.”
The ‘standard form’ contract is the rule. He must either
accept the terms of this contract in toto or go without. Since, C
however, it is not feasible to deprive oneself of such necessary
services, the individual is compelled to accept on those terms. In
view of this fact, it is quite clear that freedom of contract is now
largely an illusion.”
52. (a). It has been emphasised in D.T.C. (supra) that the period D
of contract is to be reasonable and the employee has a right to know the
conditions of work and he is properly protected against redundancy.
Approving decision in Central Inland Water Transport Corporation
Ltd. & Anr. v. Brojo Nath Ganguly & Anr. (1983) 3 SCC 156 Court
held thus: E
“282. In Brojo Nath case (1986) 3 SCC 156, Madon, J. elaborately
considered the development of law relating to unfair or
unreasonable terms of the contract or clauses thereof in extenso,
and it is unnecessary for me to traverse the same grounds once
over. The learned Judge also considered the arbitrary, unfair, and F
unbridled power on the anvil of distributive justice or justness or
fairness of the procedure envisaged therein. The relevant case
law in that regard was dealt with in extenso in the light of the
development of law in the Supreme Court of United States of
America and the House of Lords in England and in the continental
countries. To avoid needless burden on the judgment, I do not G
repeat the same reasoning. I entirely agree with the reasoning,
and the conclusions reached therein on all these aspects.”
(b). This Court in D.T.C. (supra) with respect to the alteration of
Government contracts and the right of the State to impose unconstitutional
conditions, observed: H
870 SUPREME COURT REPORTS [2020] 4 S.C.R.
A “283. The problem also could be broached from the angle
whether the State can impose unconstitutional conditions as part
of the contract or statute or rule etc. In (1959-60) 73 Harvard
Law Review, in the Note under the caption ‘Unconstitutional
Condition’ at pages 1595-96 it is postulated that the State is devoid
of power to impose unconstitutional conditions in the contract that
B
the power to withhold largesse has been asserted by the State in
four areas i.e. (1) regulating the right to engage in certain activities;
(2) administration of government welfare programme; (3)
government employment; and (4) procurement of contracts. It
was further adumbrated at pages 1602-03 thus:
C “The sovereign’s constitutional authority to choose those with
whom it will contract for goods and services is, in effect, a power
to withhold the benefits to be derived from economic dealings
with the government. As government activity in the economic
sphere increases, the contracting power enables the government
D to control many hitherto unregulated activities of contracting
parties through the imposition of conditions. Thus, regarding the
government, as a private entrepreneur, threatens to impair
constitutional rights. The government, unlike a private individual,
is limited in its ability to contract by the Constitution. The federal
contracting power is based upon the Constitution’s authorisation
E of these acts ‘necessary and proper’ to the carrying out of the
functions which it allocates to the national government. Unless
the objectives sought by terms and conditions in government
contracts requiring the surrender of rights are constitutionally
authorised, the conditions must fall as ultra vires exercise of
F power.”
Again at page 1603, it is further emphasised thus:
“When conditions limit the economic benefits to be derived
from dealings with the government to those who forego the
exercise of constitutional rights, the exclusion of those retaining
G their rights from participation in the enjoyment of these benefits
may be violative of the prohibition, implicit in the due process
clause of Fifth Amendment and explicit in the equal protection
clause of the Fourteenth Amendment against unreasonable
discrimination in the governmental bestow of advantages. Finally,
H disabling those exercising certain rights from participating in the
ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 871
ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]
advantages to be derived from contractual relations with the A
government may be a form of penalty lacking in due process. To
avoid invalidation for any of the above reasons, it must be shown
that the conditions imposed are necessary to secure the legitimate
objectives of the contract, ensure its effective use, or protect society
from the potential harm which may result from the contractual
B
relationship between the government and the individual.”
284. Professor Guido Calabresi of Yale University Law School in
his “Retroactivity, Paramount Power and Contractual
Changes” (1961-62) 71 Yale Law Journal 1191, stated that the
government can make contracts that are necessary and proper
for carrying out any of the specific clauses of the Constitution or C
power to spend for general welfare. The Federal Government
has no power, inherent or sovereign, other than those specifically
or explicitly granted to it by the Constitution. At page 1197, it is
further stated thus:
“The government acts according to due process standards for the D
due process clause is quite up to that task without the rule.
Alterations of government contracts are not desirable in a free
country even when they do not constitute a ‘taking’ of property or
impinge on questions of fundamental fairness of the type
comprehended in due process. The government may make E
changes, but only if war or commerce require them and not on
the broader and more ephemeral grounds that the general welfare
would be served by the change. Any other rule would allow the
government to welch almost at will.”
xxx F
286. In Brojo Nath case (supra, after elaborate consideration of
the doctrine of “reasonableness or fairness” of the terms and
conditions of the contract vis-a-vis the relative bargaining power
of the contracting parties this Court laid down that the principles
deducible from the discussion made therein is in consonance with G
right or reason intended to secure socio-economic justice and
conform to mandate of the equality clause in Article 14. The
principle laid was that courts will not enforce and will, when called
upon to do so, strike down an unfair and unreasonable contract or
an unfair and unreasonable clause in a contract, entered into
between parties who are not equal in bargaining power …. It will H
872 SUPREME COURT REPORTS [2020] 4 S.C.R.
A apply to situations in which the weaker party is in a position in
which he can obtain goods or services or means of livelihood only
upon the terms imposed by the stronger party or go without them.
It will also apply where a man has no choice, or rather no
meaningful choice, but to give his assent to a contract or to sign
on the dotted line in a prescribed or standard form or to accept a
B
set of rules as part of the contract, however unfair, unreasonable
and unconscionable a clause in that contract or form or rules may
be. This principle, however, will not apply where the bargaining
power of the contracting parties is equal or almost equal or where
both parties are businessmen, and the contract is a commercial
C transaction.
287. In today’s complex world of giant corporations with their
vast infrastructural organisations the State through its
instrumentalities and agencies has been entering into almost every
branch of industry and commerce and field of service, there can
D be myriad situations which result in unfair and unreasonable
bargains between parties possessing wholly disproportionate and
unequal bargaining power. These cases can neither be enumerated
nor fully illustrated. The court must judge each case on its own
facts and circumstances.”
E (emphasis supplied)
The Court held that there can be myriad situations which result in
unfair and unreasonable bargains, which are the outcome of an unequal
bargaining power. Each case has to be seen on its own facts and
circumstances.
F (c). In D.T.C. (supra), the Court also held that Article 14 sheds
light on public policy to curb arbitrariness thus:
“294. In Basheshar Nath v. CIT, AIR 1959 SC 149, S.R. Das,
C.J. held that Article 14 is founded on a sound public policy
recognised and valued in all States, and it admonishes the State
G when it disregards the obligations imposed upon the State.
295. In E.P. Royappa v. State of Tamil Nadu, (1974) 4 SCC 3,
Bhagwati, J. (as he then was) held that Article 14 is the genus
while Article 16 is a specie. Article 16 gives effect to the doctrine
of equality in all matters relating to public employment. The basic
H principle which, therefore, informs both Articles 14 and 16 is
ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 873
ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]
equality and inhibition against discrimination. “Equality is a dynamic A
concept with many aspects and dimensions, and it cannot be
“cribbed, cabined and confined” within traditional and doctrinaire
limits. From a positivistic point of view, equality is antithetical to
arbitrariness. In fact, equality and arbitrariness are sworn enemies;
one belongs to the rule of law in a republic while the other, to the
B
whim and caprice of an absolute monarch. Where an act is
arbitrary, it is implicit in it that it is unequal both according to political
logic and constitutional law and is therefore violative of Article
14, and if it affects any matter relating to public employment, it is
also violative of Article 16. Articles 14 and 16 strike at arbitrariness
in State action and ensure fairness and equality of treatment. In C
Maneka Gandhi case (1978) 1 SCC 248, it was further held that
the principle of reasonableness, which legally as well as
philosophically, is an essential element of equality or non-
arbitrariness pervades Article 14 like a brooding omnipresence.
In Ramana case (1979) 3 SCC 489, it was held that it is merely a
D
judicial formula for determining whether the legislative or executive
action in question is arbitrary and therefore constituting denial of
equality. If the classification is not reasonable and does not satisfy
the two conditions, namely, rational relation and nexus, the
impugned legislative or executive action would plainly be arbitrary,
and the guarantees of equality under Article 14 would be breached. E
Wherever, therefore, there is arbitrariness in State action, whether
it be of legislature or of the executive or of an “authority” under
Article 12, Article 14, “immediately springs into action and strikes
down such State action.”In fact, the concept of reasonableness
and non-arbitrariness pervades the entire constitutional scheme
F
and is a golden thread which runs through the whole of the fabric
of the constitution.
302. Article 14 is the general principle, while Article 311(2) is a
special provision applicable to all civil services under the State.
Article 311(2) embodies the principles of natural justice, but proviso
to clause (2) of Article 311 excludes the operation of principles of G
natural justice engrafted in Article 311(2) as an exception in the
given circumstances enumerated in three clauses of the proviso
to Article 311(2) of the Constitution. Article 14 read with Articles
16(1), and 311 are to be harmoniously interpreted that the proviso
to Article 311(2) excludes the application of the principles of natural H
874 SUPREME COURT REPORTS [2020] 4 S.C.R.
A justice as an exception; and the applicability of Article 311(2) must,
therefore, be circumscribed to the civil services and be construed
accordingly. In respect of all other employees covered by Article
12 of the Constitution, the dynamic role of Article 14 and other
relevant articles like Article 21 must be allowed to have full play
without any inhibition, unless the statutory rules themselves,
B
consistent with the mandate of Articles 14, 16, 19 and 21 provide,
expressly such an exception.”
(emphasis supplied)
(d). Arbitrariness in State action whether of the legislature or the
C executive or of an authority under Articles 12, 14 and 21 comes into play
to strike down such an action. The Court in D.T.C. (supra) held thus:
“303. Article 19(1)(g) empowers every citizen the right to
avocation or profession etc. which includes right to be continued
in employment under the State unless the tenure is validly
D terminated consistent with the scheme enshrined in the
fundamental rights of the Constitution. Therefore, if any procedure
is provided for deprivation of the right to employment or right to
the continued employment till the age of superannuation as is a
source to right to livelihood, such a procedure must be just, fair
and reasonable. This Court in Fertilizer Corporation Kamgar
E Union (Regd.), Sindri v. Union of India (1981) 1 SCC 568,
held that Article 19(1)(g) confers a broad and general right which
is available to all persons to do works of any particular kind and of
their choice. Therefore, whenever there is arbitrariness in State
action — whether it be of the legislature or of the executive or of
F an authority under Article 12, Articles 14 and 21 spring into action
and strikes down such an action. The concept of reasonableness
and non-arbitrariness pervades the entire constitutional spectrum
and is a golden thread which runs through the whole fabric of the
Constitution. Therefore, the provision of the statute, the regulation
or the rule which empowers an employer to terminate the services
G of an employee whose service is of an indefinite period till he
attains the age of superannuation, by serving a notice or pay in
lieu thereof must be conformable to the mandates of Articles 14,
19(1)(g) and 21 of the Constitution. Otherwise, per se, it would be
void. In Moti Ram Deka case, AIR 1964 SC 600, Gajendragadkar,
H J. (as he then was) after invalidating the Rules 149(3) and 148(3)
ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 875
ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]
under Article 311(2) which are in pari materia with Regulation A
9(b) of the Regulations also considered their validity in the light of
Article 14 and held thus: (SCR p. 731)
“Therefore, we are satisfied that the challenge to the validity
of the impugned Rules on the ground that they contravene Article
14 must also succeed.” B
This was on the test of reasonable classification as the
principle then was applied. Subba Rao, J. (as he then was) in a
separate but concurring judgment, apart from invalidating the rule
under Article 311(2) also held that the rule infringed Article 14 as
well, though there is no elaborate discussion in that regard. But, C
Das Gupta, J. considered elaborately on this aspect and held: (SCR
p. 770)
“Applying the principle laid down in the above case to the
present Rule, I find on the scrutiny of the Rule that it does not lay
down any principle or policy for guiding the exercise of discretion D
by the authority who will terminate the service in the matter of
selection or classification. Arbitrary and uncontrolled power is
left in the authority to select at its will any person against whom
action will be taken. The rule thus enables the authority concerned
to discriminate between two railway servants to both of whom
Rule 148(3) equally applied by taking action in one case and not E
taking it in the other. In the absence of any guiding principle in the
exercise of the discretion by the authority, the Rule has, therefore,
to be struck down as contravening the requirements of Article 14
of the Constitution.”
308. In Ramana case (1979) 3 SCC 489, it has been held F
that: (SCC p. 504, para 10)
“It is indeed unthinkable that in a democracy governed by
the rule of law, the executive government or any of its officers
should possess arbitrary power over the interests of the individual.”
G
The procedure adopted should match with what justice
demands. History shows that it is always subtle and insidious
encroachments made ostensibly for a good cause that imperceptibly
but surely erode the foundations of liberty.”
(emphasis supplied)
H
876 SUPREME COURT REPORTS [2020] 4 S.C.R.
A (e). An employer cannot act in a manner that is in the negation of
just, fair, and reasonable procedure. The Court held:
“329. I am, therefore, inclined to hold that the courts, though,
have no power to amend the law by process of interpretation but
do have power to mend it so as to be in conformity with the
B intendment of the legislature. Doctrine of reading down is one of
the principles of interpretation of statute in that process. But when
the offending language used by the legislature is clear, precise,
and unambiguous, violating the relevant provisions in the
Constitution, resort cannot be had to the doctrine of reading down
to blow life into the void law to save it from unconstitutionality or
C to confer jurisdiction on the legislature. Similarly, it cannot be taken
aid of to emasculate the precise, explicit, clear and unambiguous
language to confer arbitrary, unbridled and uncanalised power on
an employer which is a negation to just, fair and reasonable
procedure envisaged under Articles 14 and 21 of the Constitution
D and to direct the authorities to record reasons, (sic) unknown or
unintended procedure, in the manner argued by the learned counsel
for the appellants.”
(emphasis supplied)
(f). In D.T.C. (supra) this Court also relied upon S.G. Jaisinghani
E v. Union of India, AIR 1967 SC 1427 :
“331. x x x “In this context it is important to emphasise that
the absence of arbitrary power is the first essential of the rule of
law upon which our whole constitutional system is based. In a
system governed by rule of law, discretion, when conferred
F upon executive authorities, must be confined within defined
limits. The rule of law from this point of view means that decisions
should be made by the application of known principles and rules
and, in general, such decisions should be predictable, and the citizen
should know where he is. If a decision is taken without any principle
G or without any rule, it is unpredictable, and such a decision is the
antithesis of a decision taken in accordance with the rule of law.
(See Dicey: Law of the Constitution, 10th edn., Introduction cx.)
‘Law has reached its finest moments,’ stated Douglas, J. in
United States v. Wunderlich 342 US 98, ‘when it has freed man
from the unlimited discretion of some ruler …. Where discretion
H
ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 877
ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]
is absolute, man has always suffered.’ It is in this sense that the A
rule of law may be said to be the sworn enemy of caprice.
Discretion, as Lord Mansfield stated it in classic terms in the case
of John Wilkes (1770) 4 Burr 2528, ‘means sound discretion
guided by law. It must be governed by rule, not by humour: it must
not be arbitrary, vague and fanciful’”.
B
(emphasis supplied)
(g). The Court emphasised that the decision has to be predictable
and it cannot be uncertain. The decision has to be taken by application
of known principles and rules. The exercise of power cannot be whimsical
or capricious. This Court in D.T.C. (supra) held: C
“332. In an appropriate case where there is no sufficient evidence
available to inflict by way of disciplinary measure, penalty of
dismissal or removal from service and to meet such a situation, it
is not as if that the authority is lacking any power to make rules or
regulations to give a notice of opportunity with the grounds or the D
material on records on which it proposed to take action, consider
the objections and record reasons on the basis of which it had
taken action and communicate the same. However, scanty the
material may be, it must form foundation. This minimal procedure
should be made part of the procedure lest the exercise of the
power is capable of abuse for good as well as for whimsical or E
capricious purposes for reasons best known to the authority and
not germane for the purpose for which the power was conferred.
The action based on recording reasoning without communication
would always be viewed with suspicion. Therefore, I hold that
conferment of power with wide discretion without any guidelines, F
without any just, fair or reasonable procedure is constitutionally
anathema to Articles 14, 16(1), 19(1)(g) and 21 of the Constitution.
Doctrine of reading down cannot be extended to such a situation.”
(emphasis supplied)
53. On the basis of aforesaid principles, it is apparent that once G
the Central Board of Directors accepted the memorandum for making
payment of pension, in case it was not accepting the proposal in the
memorandum, it ought to have said clearly that it was not ready to accept
the proposals of the Government and the IBA and rejects the same.
Once it approved the proposals referred to in the memorandum, which
H
878 SUPREME COURT REPORTS [2020] 4 S.C.R.
A were on the basis of IBA’s letter and Government of India’s decision it
was bound to implement it in true letter and spirit. By accepting the
same, binding obligation was created upon the SBI to make payment of
pension on completion of 15 years of service. It cannot invalidate its
own decision by relying on fact it failed to amend the rule, whereas
other Banks did it later on with retrospective effect. They cannot
B
invalidate otherwise valid decision by virtue of exclusive superior power
to amend or not to amend the rule and act unfairly and make the entire
contract unreasonable based on misrepresentation. It was open to the
Board of Directors to reject the proposal. Once it accepted the proposal
to make payment of pension on completion of 15 years of service as
C proposed in the memorandum, though the scheme is tried to be interpreted
by the SBI that pension was to be admissible as provided in the rule that
refers to proportionate pension as noted by this Court in O.P. Swarnakar
& Ors., (supra), and what was decided by Government of India/IBA,
was not taken away rather adopted by the Central Board of Directors.
The scheme of contractual nature has to be read in the context and in
D
the backdrop of facts and what has been resolved by the Board of
Directors. There is no ambiguity with respect to the admissibility of
pension when the memorandum and the scheme are read together. In
case of ambiguity and even if two interpretations are possible in the
backdrop of facts of the case, one in favour of the employees has to be
E adopted and so-called clarification dated 11.1.2000 even if considered in
the manner so as to deny the benefit of pension, has to be held to be
unenforceable, illegal and contrary to law.
54. It is apparent from the eligibility clause of the VRS scheme
that eligibility is provided for the employees having 15 years of pensionable
F service and they will be entitled for benefits as provided in the scheme.
The eligibility clause, when read with clauses providing the benefit, i.e.,
clauses 5 and 6 of the scheme, leaves no room for any doubt and makes
it clear that employees with 15 years of service were treated as eligible
to claim the benefit of the scheme floated by SBI. It was not the provision
in the VRS scheme that incumbents having completed 20 years of service
G would be entitled for pensionary benefits. The scheme was carved out
specially for attracting the employees by providing pension and other
benefits to eligible persons like ex gratia, gratuity, pension and leave
encashment. Deprivation of pension would make them ineligible for the
benefits and would run repugnant to the eligibility clause.
H
ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 879
ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]
55. The submission raised on behalf of the SBI that the draft A
scheme nowhere stipulated that 15 years’ service would be the eligibility
or that on completion of 15 years’ service, the incumbent would be eligible
for pension, is factually incorrect. It is apparent from the material
circumstances, documents, and correspondence that the decision was
taken at all levels including the one by the Central Board of Directors of
B
SBI, that the benefit of pension was to be given to the employees on
completion of 15 years of service. In that perspective, vagueness of
scheme of SBI, if any, can be of no advantage as it is clear beyond the
pale of doubt that pension was heart and soul of the scheme with ex
gratia on completion of 15 years of service. It is due to the reason that
the benefit was to be accorded to the incumbents having completed 15 C
years of service, Regulation 28 as applicable to other nationalised banks
was proposed to be modified as reflected in the letter of IBA dated
11.12.2000 and Government of India letter dated 5.9.2000. Later on, the
regulation was amended in 2002 after the scheme had already been
implemented in right earnest. There was not even an iota of doubt that
D
VRS was to give benefits to all eligible employees having completed 15
years of service. It was apparent from the letter dated 29.12.2000 of
SBI that the guidelines of IBA were approved by the Central Board of
Directors in its meeting dated 27.12.2000. Para 2 of the letter dated
29.12.2000 of SBI Deputy Managing Director-cum-SDO is extracted
hereunder: E
“2. Accordingly, the Central Board of Directors, in its meeting
held on 27.12.2000, has accorded approval for adopting and
implementing the Voluntary Retirement Scheme for the employees
of the Bank, namely “SBI Voluntary Retirement Scheme
(SBIVRS).” The Scheme “SBIVRS” has been drawn up, keeping F
in view the guidelines issued by IBA. A copy of the Scheme is
placed at Annexure ‘B’.”
(emphasis supplied)
56. As noted in O.P. Swarnakar & Ors., (supra), the case of
bank itself was that it was a contractual scheme. The expression G
“pension” as per rules was only for the purpose of working out the
proportionate pension. It was clearly decided to open the scheme to
employees who have put in 15 years of service. It was not provided in
the scheme that the incumbent was required to render a pensionable
service of 20 years as per the rules in order to acquire eligibility for the H
880 SUPREME COURT REPORTS [2020] 4 S.C.R.
A pension. The submission made on behalf of SBI is too tenuous to be
accepted. It was observed in para 89 of O.P. Swarnakar & Ors., (supra)
quoted above that the employee must have proceeded on the basis of 15
years of service then they were entitled to pensionary benefits.
The Court further observed in O.P. Swarnakar & Ors., (supra)
B that the scheme is enforceable thus:
“92. However, the case of the State Bank of India stands slightly
on a different footing. Firstly, the State Bank of India had not
amended the Scheme. It, as noticed hereinbefore, even permitted
withdrawal of the applications after (sic by) 15th February. The
C Scheme floated by the State Bank of India contained a clause
(clause 7) laying down the mode and manner in which the
application for voluntary retirement shall be considered. The
relevant clause, as referred to hereinbefore, creates an enforceable
right. In the event the State Bank failed to adhere to its preferred
policy, the same could have been specifically enforced by a court
D of law. The same would, therefore, amount to some consideration.”
57. While construing a contract, the language and surrounding
circumstances of the overall scheme, memorandum and letters are to be
read conjointly to find out whether any departure made by the Board of
Directors in its Resolution dated 27.12.2000 is of pivotal significance. In
E this case, the decision was taken by it of approval of the IBA scheme as
proposed. Its binding effect cannot be changed on the basis what parties
choose to say afterward, nor they can be permitted to wriggle out. The
contract is required to be read as a whole. It is apparent on a bare
reading that optees will be eligible for proportionate pension under the
F Pension Regulations of the bank and therefore, the bank bears the risk
of lack of clarity, if any.
58. In Bank of India & Anr. v. K. Mohandas & Ors., (2009) 5
SCC 313 wherein several other banks were also parties, the question
arose as to the nature of VRS, 2000. The Court noted the objectives, the
G amendment made in Regulation 28 in 2002, providing for 15 years of
service. The scheme was open in November-December, 2000 and in
Union Bank of India in January, 2001. The employees claimed that those
who completed 20 years of service, were entitled to the benefit of
provisions contained in Regulation 29(5) of Employees’ Pension
Regulations, 1995 applicable to the said banks. They claimed having
H completed the qualifying service of 20 years under Regulation 29, were
ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 881
ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]
entitled for 5 years’ increase in the service tenure subject to the maximum A
of 33 years which was not given to them on the ground that the benefit
of VRS was available to incumbents having completed 15 years of service
as provided in amended Regulation 28, and Regulation 29 was not
applicable. This Court held that the benefit of VRS was available to the
employees having completed 15 years of service, but the additional benefit
B
which was available on completion of 20 years of service was also
admissible as provided in Regulation 29(5).
59. While considering the aforesaid similar scheme of VRS, this
Court observed with respect to the construction of the contract on the
basis of the import of the words. The intention of the parties must be
ascertained from the language they have used and considered in the C
light of surrounding circumstances, and the meaning cannot be changed
by a course of conduct adopted by the parties in acting under it. This
Court in K. Mohandas (supra) held thus:
“28.The true construction of a contract must depend upon the
import of the words used and not upon what the parties choose to D
say afterwards. Nor does subsequent conduct of the parties in
the performance of the contract affect the true effect of the clear
and unambiguous words used in the contract. The intention of the
parties must be ascertained from the language they have used,
considered in the light of the surrounding circumstances and the E
object of the contract. The nature and purpose of the contract is
an important guide in ascertaining the intention of the parties.
29. In Ottoman Bank of Nicosia v. Ohanes Chakarian, Lord
Wright made these weighty observations: (AIR p. 29)
“… that if the contract is clear and unambiguous, its true effect F
cannot be changed merely by the course of conduct adopted by
the parties in acting under it.”
30. In Ganga Saran v. Firm Ram Charan Ram Gopal AIR
1952 SC 9, a four-Judge Bench of this Court stated: (AIR p. 11,
para 6) G
“6. … Since the true construction of an agreement must depend
upon the import of the words used and not upon what the parties
choose to say afterwards, it is unnecessary to refer to what the
parties have said about it.”
H
882 SUPREME COURT REPORTS [2020] 4 S.C.R.
A 31. It is also a well-recognised principle of construction of a
contract that it must be read as a whole in order to ascertain the
true meaning of its several clauses and the words of each clause
should be interpreted so as to bring them into harmony with the
other provisions if that interpretation does no violence to the
meaning of which they are naturally susceptible. (North Eastern
B
Railway Co. v. Lord Hastings, 1900 AC 260)”
60. With respect to lack of clarity in the scheme, this Court in
K. Mohandas (supra) relied on maxim verba chartarum fortius
accipiuntur contra proferentem to hold that banks who were
responsible for formulation of the terms in the contractual Scheme, bear
C the risk of lack of clarity. Thus, the benefit has to be given to the employees
by making interpretation against the banks. The Court held :
“32. The fundamental position is that it is the banks who were
responsible for formulation of the terms in the contractual Scheme
that the optees of voluntary retirement under that Scheme will be
D eligible to pension under the Pension Regulations, 1995, and,
therefore, they bear the risk of lack of clarity, if any. It is a well-
known principle of construction of a contract that if the terms
applied by one party are unclear, an interpretation against that
party is preferred (verba chartarum fortius accipiuntur contra
E proferentem).
33. What was, in respect of pension, the intention of the banks at
the time of bringing out VRS 2000? Was it not made expressly
clear therein that the employees seeking voluntary retirement will
be eligible for pension as per the Pension Regulations? If the
F intention was not to give pension as provided in Regulation 29 and
particularly sub-regulation (5) thereof, they could have said so in
the Scheme itself. After all, much thought had gone into the
formulation of VRS 2000, and it came to be framed after great
deliberations. The only provision that could have been in mind
while providing for pension as per the Pension Regulations was
G Regulation 29. Obviously, the employees, too, had the benefit of
Regulation 29(5) in mind when they offered for voluntary
retirement as admittedly Regulation 28, as was existing at that
time, was not applicable at all. None of Regulations 30 to 34 was
attracted.”
H (emphasis supplied)
ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 883
ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]
61. In K. Mohandas (supra) the Court considered the argument A
that Regulation 28 would be applicable only for providing 15 years of
eligibility as provided by way of amendment of Regulation of 1995, and
held that as the banks are “State” within the meaning of Article 12, it
would be an arbitrary action on their part to deny the benefit of section
29(5), and there has to be harmonious construction to the scheme and
B
Pension Regulations, thus:
“35. We are afraid; it would be unreasonable if amended
Regulation 28 is made applicable, which had not seen the light of
the day and which was not the intention of the banks when the
Scheme was framed. The banks in the present batch of appeals
are public sector banks and are “State” within the meaning of C
Article 12 of the Constitution and their action even in contractual
matters has to be reasonable, lest, as observed in O.P. Swarnakar
(2003) 2 SCC 721, it must attract the wrath of Article 14 of the
Constitution.
36. Any interpretation of the terms of VRS 2000, although D
contractual in nature, must meet the test of fairness. It has to be
construed in a manner that avoids arbitrariness and
unreasonableness on the part of the public sector banks who
brought out VRS 2000 with an objective of rightsizing their
manpower. The banks decided to shed surplus manpower. By E
formulation of the special scheme (VRS 2000), the banks intended
to achieve their objective of rationalising their force as they were
overstaffed. The special Scheme was, thus, oriented to lure the
employees to go in for voluntary retirement. In this background,
the consideration that was to pass between the parties assumes
significance and a harmonious construction to the Scheme, and F
the Pension Regulations, therefore, has to be given.
37. The amendment to Regulation 28 can, at best, be said to have
been intended to cover the employees with 15 years of service or
more but less than 20 years of service. This intention is reflected
from the communication dated 5-9-2000 sent by the Government G
of India, Ministry of Finance, Department of Economic Affairs
(Banking Division) to the Personnel Advisor, Indian Banks’
Association.”
(emphasis supplied)
H
884 SUPREME COURT REPORTS [2020] 4 S.C.R.
A It opined that the amendment to Regulation 28 of 1995 Regulation
intended to cover 15 years of service, i.e., employees with 15 years of
service who have not completed 20 years of service. A similar action to
amend the Rule was required to be taken by the SBI, but it failed to take
it after having floated a similar scheme. It kept it uncertain what would
be the position of the rule as on the appointed date, i.e., 31.3.2001. Be
B
that as it may. But it was crystal clear that the incumbent with 15 years
of service was eligible for the benefit as provided in the scheme itself.
The benefit clause has to be read with the eligibility criteria. Once VRS
was formulated and adopted by the SBI in toto, it constituted a complete
contractual package in itself.
C 62. As urged on behalf of SBI if section 23 of the Contract Act is
applied, then how it is helpful to the bank, is not understandable. In case
it is held that the very scheme was opposed to the law/rules, the entire
scheme would fall down. Once it adopted the scheme, invited applications
and the employees acted upon it and retired on the basis of the scheme,
D they cannot be left in lurch. In case its submission is accepted, the
Scheme becomes violative of Section 23 of Contact Act, the bank would
have to suffer the consequences of striking down of the very scheme
and would be required to reinstate the employees and to pay them the
salary and other benefits. However, SBI accepted the scheme, it was
incumbent upon it to bring the rules in consonance with the similar VRS
E scheme as was done by other banks. The SBI accepted the scheme on
27.12.2000 without any ifs and buts. Thus, the anomaly was the outcome
of the bank’s inaction to propose and make amendment of rules. In such
a scenario, the action of SBI is violative of Articles 14, 16 and 21 of the
Constitution. The situation created by itself is not going to benefit the
F bank to lend support to arbitrary action. The bank was bound to extend
the benefits by amending the rules, if necessary, to salvage the situation
for itself. Breach of law has been committed by the SBI itself, its action
is arbitrary and it cannot be permitted to take advantage of its own
wrong.
G 63. The pension cannot be dealt with arbitrarily and cannot be
denied in an unfair manner. The concept of pension was considered in
D.S. Nakara & Ors. v. Union of India, (1983) 1 SCC 305. The right to
a pension can be enforced through the court, it observed :
“20. The antequated notion of pension being a bounty, a gratuitous
H payment depending upon the sweet will or grace of the employer
ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 885
ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]
not claimable as a right and, therefore, no right to pension can be A
enforced through Court has been swept under the carpet by the
decision of the Constitution Bench in Deokinandan Prasad v.
State of Bihar (1971) 2 SCC 330 wherein this Court authoritatively
ruled that pension is a right and the payment of it does not depend
upon the discretion of the Government but is governed by the
B
rules and a government servant coming within those rules is entitled
to claim pension. It was further held that the grant of pension
does not depend upon anyone’s discretion. It is only for the purpose
of quantifying the amount having regard to service and other allied
matters that it may be necessary for the authority to pass an order
to that effect but the right to receive pension flows to the officer C
not because of any such order but by virtue of the rules. This
view was reaffirmed in State of Punjab v. Iqbal Singh, (1976) 2
SCC 1.
22. In the course of transformation of society from feudal to
welfare and as socialistic thinking acquired respectability. State D
obligation to provide security in old age, an escape from undeserved
want was recognised and as a first step pension was treated not
only as a reward for past service but with a view to helping the
employee to avoid destitution in old age. The quid pro quo was
that when the employee was physically and mentally alert, he
rendered unto master the best, expecting him to look after him in E
the fall of life. A retirement system, therefore, exists solely for the
purpose of providing benefits. In most of the plans of retirement
benefits, everyone who qualifies for normal retirement receives
the same amount (see Retirement Systems for Public Employees
by Bleakney, p. 33).” F
This Court observed that the principal aim of the socialist State as
envisaged in the Preamble is to eliminate inequality. The basic framework
of socialism is to provide security in the fall of life to the working people
and especially provides security from the cradle to the grave when
employees have rendered service in heydays of life, they cannot be G
destituted in old age, by taking action in an arbitrary manner and for
omission to complete obligation assured one. Though there cannot be
estoppel against the law but when a bank had the power to amend it, it
cannot take shelter of its own inaction and SBI ought to have followed
the pursuit of other banks and was required to act in a similar fair manner
having accepted the scheme. H
886 SUPREME COURT REPORTS [2020] 4 S.C.R.
A 64. Resultantly, we are of the opinion that the employees who
completed 15 years of service or more as on cut-off date were entitled
to proportionate pension under SBI VRS to be computed as per SBI
Pension Fund Rules. Let the benefits be extended to all such similar
employees retired under VRS on completion of 15 years of service
without requiring them to rush to the court. However, considering the
B
facts and circumstances, it would not be appropriate to burden the bank
with interest. Let order be complied with and arrears be paid within
three months, failing which amount to carry interest at the rate of 6 per
cent per annum from the date of this order. The appeals are accordingly
disposed of. No costs.
C
Ankit Gyan Appeals disposed of.
D
E
F
G
H
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