M. L. KAMRAversusCHAIRMAN-CUM-MANAGING DIRECTOR, NEW INDIA ASSURANCE CO. LTD. AND ANR.

A                         M. L. KAMRA
                                v.
               CHAIRMAN-CUM-MANAGING DIRECTOR,
            NEW INDIA ASSURANCE CO. LTD. AND ANR.

                             JANUARY 17, 1992
B
               [A.M. AHMADI AND K. RAMASWAMY, JJ.)

         Orissa Insurance Co-operative Society Limited Service Rules.

          Rule 5-Whether arbitrary, unreasonable and vo~ec/ared to be
c   recast.

         Statutory Interpretation.

          Presumption in favour of constitutionality of legislation-Interpreta-
    tion favouring constitutionality to be accepted.
D
          While the appellant was working as Divisional Manager at Delhi,
    the general insurance business was nationalised and its management
    was taken over by the Central Government under General Insurance
    (Emergency Provisions) Ordinance, 1971 which was replaced by Act 57
    or 1972 and vested in the Custodian or the New India Assurance Co.
    Ltd., the management of Orissa Insurance Co-operative Society Ltd.
E
         By operation or Section 7 or the Act the services or the appellant
    and others stood transferred and vested with the custodian.

          The appellant was kept under suspension from August 9, 1973
F   pending investigation into charges of embezzlement. Explanation was
    called for on October 16, 1973 and the appellant submitted his reply on
    December 7, 1974. While dropping the proceeding, the appellant was
    served with a termination order dated April 17, 1975 issued by the
    respondent.
G         The appellant challenged the aforesaid termination order in a writ
    petition in Delhi High Court which was dismissed by a Single Judge on
    November 11, 1983 and this judgment was confirmed by the Division
    Bench in a Letter Patent Appeal.

H         In the appeal to this Court it was contended on behalf of the

                                       220
                        KAMRA v. ASSURANCE CO.                           221

    appellant placing reliance on the majority view in D.T.C. v. D.T.C.         A
Y   Mazdoor Congress & Ors. Judgment Today 1990(3) SC 725 that Rule 5
    of the Orissa Insurance Co-operative Ltd. Services Rules is ultra vires
    of Article 14 of the Constitution. On behalf of the respondent it was
    contended that unlike Rule 9 involved in D.T.C.' s case, Rule 5 in the
    instant case provided guidelines, and that the Board of Directors had to
    take a decision, whether the need to continue the employee's service        B
    subsists which would he based on relevant material and thus there
    would be objective consideration before taking a decision, not only
    regarding the need to continue the post but also the services of the
    Officer or the employee, and if so construed the rule is not ultra vires
    of Article 14.
                                                                                c
         Allowing the appeal, this Court,

          HELD : Rule 5 of the Orissa Insurance Co·operative Society Ltd.
    is capable of the interpretation that the Board of Management may
    form an objective opinion, on the basis of material, that the post which
    the officer or the employee is occupying is no longer in need and that , D
    the post would be abolished. This would be a policy decision depending
    on the exigencies. Once the Board reaches such a decision to abolish
    the post, in consequence the service of the officer/employee occupying
    the post could be terminated. Viewed in that light the said rule does not
    become arbitrary, unreasonable or void offending Article 14 and there·
    fore the rule is valid. [225G-226 BJ                                      E

          There is a presumption in favour of constitutionality of a legisla·
    lion or statutory rule unless ex facie it violates the fundamental rights
    guaranteed under Part Ill of the constitution. If the provisions of a law
    or the rule is construed in such a way as would make it consistent with
    the Constitution and another interpretation would render the pro•ision      F
    or the rule unconstitutional, the Court would lean in- favour of the
    former construction. [225 E]

          It is clear in the instant case, that the Board of Management did
    not abolish the post but put an end to the service of the appellant,        G
    obviously due to loss of confidence as his honesty and integrity became
    suspicious and his continuance in service was felt inexpedient and not
    in the interest of the business of the respondents. But Rule 8 was
    available for taking action for misconduct but was not availed. There·
    fore, the order terminating the services of the appellant is illegal.
    ~q                                                                          H
    222                 SUPREME COURT REPORTS                    [1992] ! S.C.R.

A         Normally the apellant is entitled to reinstatement but the ends of
    justice would be met by directing the respondents to pay him Rs.
    1,00,000 as compensation, instead of reinstatement and further continu-
    ance in service. The compensation awarded would be staggered between
    the year 1973 till date for the purpose of income tax and given the
    appropriate relief. [226D-EJ
B
         March of service jurisprudence necessitates that the respondent
    recast Rule S in tune with the Constitution and the law. [226-E]

          CIVIL APPELLATE JURISDICTION: Civil Appeal No. 655 of 1986.

C        From the Judgment and Order dated 23.4.1984 of the Delhi High
    Court in Letters Patent Appeal No. 25 of 1984.

          M.K.Ramamurtby, Ms. S.Pappuh, B.P. Singh, Rishi Kesh, Raj Birbal,
    Sanjeev Sabharwal, B.R. Sabharwal and M.M. Kashyap for the appearing
    parties.
D
          S.S. Harlakha appeared in person.

          S.S.Onkarmal appeared in person for the Intervener.

          The Judgment of the Court was delivered by
E
          K. RAMASWAMY, J. In this appeal by special leave, by way of
    additional grounds with leave, the appellant impugnes Rule 5 of the Orissa
    Ir~urance Co-0perative Society Ltd. Service Rules (for short 'the Rules') as
    unconstitutional and void offending Article 14 of the Constitution of India.
    The material facts relevant to the point are that while the appellant was
F   working as Divisional Manager at Delhi, the general insurance business was
    nationalised and its management was taken over by the Central Government
    under General Ins11111ACe (Emergen~y Provisions) Ordinance, 1971 replaced
    by Act 57 of 1972 (for short 'the Act') and vested in the custodian of the
    New India Assurance Co. Ltd., the management of Orissa Insurance Co-
G   operative Society Ltd. By operation of s. 7 of the Act, the services of the
    appellant and others stood transferred and vested with the custodian. Under
    the Act, the Board of Directors was empowered to terminate the service of
    the Officer/employee of the insurer. The appellant was kept under suspen-
    sion from August 9, 1973 pending investigation into the embezzlement,
    Explanation was called for on October 16, 1973. In response thereto the
H   appellant submitted his reply on December 7, 1974. While dropping the
            KAMRA v. ASSURANCE CO. [RAMASWAMY, J.]                          223

proceeding, the appellant was served with termination order dated April 17,        A
1975 issued by the respondent. The appellant challenged it in a writ
petitition in Delhi High Court which was dismissed by a learned Single
Judge on November 11, 1983 and was confirmed by the Division Bench in
Letter Patent Appeal No.351/1984 dated April 23, 1984.

      Section 7 of the Act provides that every whole time officer or other         B
employee of an existing insurer employed in connection with his General
Insurance business, immediately before the appointed day, shall become an
officer/employee of the Indian Insurance Co. in which the undertaking of
the insurer to which the service of the officer relates has vested and would
hold his office on the same terms and conditions and with the same rights
to pension, gratuity and other matters as would have been admissible to
him, if there had been no such vesting and shall continue to do so unless
and until his appointment is terminated. Section 16(1) in Chapter V
provides that if the Central Govt. is of the opinion that for the more efficient
carrying on of General Insurance business, it is necessary to do so, it may
by notification, frame one or more schemes providing for all or any of the
following matters; (e) the rationalisation or revision of pay-scales and other     D
terms and conditions of service of officers and other employees wherever
necessary. Pursuant thereto, the Central Govt. framed the New India
Asssurance Co. Lid. Merger Scheme, 1973 with effect from December 31,
1973. Thereunder by Rule 3, the undertaking was transferred to the respon-
dent; under Rule 5 the existing whole time officer etc. became the officer
of the transferee company (New Indian Assurance Co. Ltd.) and could hold           E
his office on the same terms and conditions as would have been admissible
to him if there had been no such transfer, as referred to in paragraph 3. He
shall continue to remain a officer unless and until his employment, in the
transferee company is terminated or the terms and conditions are duly
altered by any other scheme framed under the Act. By notification dated
April 29, 1976 the Central Govt. also framed the scheme called the General         F
Insurance (Rationalisation of pay-scales and other Conditions of Service of
Development Step) Scheme, 1976 which came into force on May I, 1976,
the details of which are not material for the reason that service' of the
appellant was terminated, in terms of the existing Rule 5 of the Rules. Suf-
fice to state that pursuant to the nationalisation under the Act and the
Scheme, the appellant became the officer of the respondent.
                                                                                   G

      Rule 5 reads thus :

      Termination of Service:
                                                                                   H
    224                   SUPREME COURT REPORTS                   [1992] !   s. c. R.
A                "An ~mployee whether pennanent or temporaray shall not leave
                or discontinue his service in the Society without first giving 30
                days notice in writing of his intention to do so, to the Principal
                Officer. Failure to do so will entail forfeiture of the pay of the
                month. In the event of the Society not having any further need of
                any employee's service whether pennanent or temporary, which
B               shall be decided by lhe Board, the Principal Officer shall give 30
                days' notice in writing for tennination of his service or in lieu
                thereof pay such employee a sum equivalent to his one month
                pay including allowance upto the tennination of the period of
                notice by way of compensation provided that nothing in these
                rules shall affect the rights of the society to dismiss an employee
c               under Rule 8 for misconduct etc. without any notice or salary in
                lieu of notice, in the manner prescribed in these rules.

                An employee shall ordinarily retire from the Society's service on
                completion of his 55th yev unless the Board reserves to continue
                him in office for such period as may be detennined from time to
D               time.''

         It is thus manifest that an employee, whether pennanent or temporary,
  has an option to leave or discontinue by giving 30 days' notice in writing
  of his intention to do so. His failure thereof shall entail forfeiture of the pay
  of the month. The employee ordinarily would be superannuated on comple-
E tion of his 55th year unless the Board continues him for an extended period
  as may be determined from time to time. Equally in the event of the Society
  not having any further need of the employee's service, whether pennanent
  or temporary, which should be decided by the Board, the Principal Officer
  shall give 30 days' notice in writing for tennination of his service or in lieu
  thereof, pay one month's salary including allowances upto the period of
F tennination. The respondent also has the right to dismiss an employee,
  under Rule 8, for miscond~ct in the manner prescribed in the Rules.
  Admittedly, though action was initiated against the appellant for the charges
  of embezzlement etc. which are misconduct, the charges were dropped.
  Taking aid of Rule 5 and without conducting an enquiry or giving an
G opportunity, the appellant's service was tenninated by tendering one
  month's salary in lieu of notice and also a direction to pay all the
  allowances upto that date including the period of his suspenslOn. It is not
  necessary to go into the grounds taken in the High Court assailing the
  invalidity of the tenninalion order as they are not pressed before us. Sri
  Rarnarnurthy, the learned Senior counsel for the appellant placing reliance on
H the ratio of the majority view in D.T.C. v. D.T.C. Mazdoor Congress & Ors..
           KAMRA v. ASSURANCE CO. [RAMASWAMY, J.)                        225

 Judgment today (1990) 3 SC 725 contended that Rule 5 is ultra vires of A
 Article 14 of lhe Constitution. SmL Shyamala Pappu, the learned Senior
 counsel for lhe respondent contended that unlike 1Rule 9 in D .T.C.' s case
 Rule 5 provides guidelines. The Board of Directors have to take a decision,
 whether the need to continue the employee's service subsists which would
 be based on the relevant material. Thereby, there would be objective
 consideraion before taking a decision, not only· regarding the need to ·B
 continue the post but also the services of the officer or the employee.
 Though the rule does not provide for prior notice, post-decisional opportu-
 nity would be read into the rule. If so read, the rule is not ultra vires Article
 14. In our view the ratio in D.T.C.' s case has no application. Rule 9 of the
 rules of Delhi Transport Corporation Service Regulation gives naked power
 to terminate the services of a permanent employee by giving one month's C
 notice or pay in lieu thereof. It was not the contention therein, that the rule
 was capable of two constructions. It is settled law that there is a presump-
.tion of constitutionaliiy of the rule. The court ought not to interpret the
 statutory provisions, unless compelled by their language, in such a manner
 as would involve its unconstitutionality, since the legislature or the rule
 making authority is presumed to enact a law which does not contravene or D
 violate the constitutional provisions. Therefore, there is a presumption in
 favour of constitutionality of a legislation or statutory rule unless ex facie
 it violates the fundamental rights guaranteed under Part 1II of the constitu-
 tion. If the provisions of law or the rule is construed in such a way as would
 make it consistent with the constitution and another interpretation would
 render the provision or the rule unconstitutional, the court would lean in · E
 favour of the former construction. In view of this settled legal position, the
 question emerges whether the language in Rule 5 would be capable to be
 construed consistent with the fundamental rights in Part lll. As stated
 earlier, the phras "in the event of the Society not having any further need
 of any employee's service whether permanent or temporary which shall be
 decided by the Board" is susceptible of two interpretations. The one F
 interpretation put up by Sri Ramamurty is that the Board may unilaterally
 and arbitrarly decide that there is no need for the services of a particular
 employee, in given facts and circumstances, though the post which the
 employee is occupying may continue and would be put to an end by giving
 one month's notice or pay in lieu thereof. In that event the rule per se is G
 arbitrary offending Article 14. The other view capable to be construed from
 the language employed would be that the Board of Management may form
 an objective opinion, on the basis of the material, that the post which the
 officer or the employee is occupying no longer is in need. Thereby, the post
 would be abolished. This would be a policy decision depending on the
 exigencies. In consequence the service of the employee ,also would become H
    226                  SUPREME COURT REPORTS                      [1992] 1 S.C.R.

A redundant or surplus. In that event his service would no longer be needed.
    The officer or employee may be pennanent or temporary but the absence
    of the need for the continuance of the post would necessitate to tenninate
    the seivice of an employee or officer. It must not be a pretext or a rouse
    to get rid of the service of an inconvenient officer or of an employte. If that
    be so, it would become coloural'?e exercise of power and would be liable
B   to be quashed as offending Article 14. Once the Board reaches a decisiC'n
    to abolish the post, in consequence the service of the officer/employee
    occuyping couched in Rule 5 also is capable of that interpretation. In that
    light we are of the opinion that Rule 5 does not become arbitrary,
    unreasonable or void offending Article 14. Acconlingly, we hold that the
    rule is valid.
c
        But from the facts, it is clear that the Board of Management did not
  abolish the post but put an end to the service of the appellant. Obviously
  due to loss of confidence as his honesty and integrity became suspicious and
  his continuance in service was felt inexpedient and not in the interest of the
  business of the respondents. But Rule 8 was available for taking action for
D misconduct but was not availed. Therefore, the impugned order tenninating
  the services of the appellant is illegal. What would be the consequence ?
  Nonnally the appellant is entitled to reinstatement but in our view the ends
  of justice would be met by directing the respondent to pay him Rs. 1,00,000
  as compensation, instead of reinstatement and further continuance in
  service. The compensation awarded would be staggered between the year
E 1973 till date for the purpose of income tax and given the appropriate relief.
  In this view it is not necessary to deal with other contentions or decisions
  cited across the bar. Before parting with the case it is necessary to mention
  that march of service jurisprudence necessitates the respondent to recast the
  rules in tune with the constitution and the law. The appeal is allowed but
  without cost The intervention application filed by Sri S.S. Onkarmal Har-
  lalka is dismissed. .

    S.B.                                                         Appeal allowed.