Holding

Rule 31(v) is unconstitutional and void as it violates Articles 14 and 16(1), and the employee is entitled to compensation in lieu of reinstatement, quantified at 3.33 years' salary.

Summary

O.P. Bhandari, a manager of a hotel under the Indian Tourism Development Corporation (ITDC), was terminated by a notice‑pay order under Rule 31(v) of the ITDC Conduct, Discipline and Appeal Rules, 1978. He challenged the constitutional validity of the rule, arguing that termination by mere notice or payment in lieu violated Articles 14 and 16(1) of the Constitution. The Supreme Court held that ITDC, being an instrumentality of the State, cannot employ a rule that allows arbitrary dismissal of its managerial cadre, declaring the rule void. While the Court recognised that reinstatement is the usual remedy, it exercised its discretion to award compensation in lieu of reinstatement, deeming it appropriate given the strained industrial relations and national interest. A compensation of 3.33 years' salary, together with statutory benefits and tax relief under Section 89 of the Income‑Tax Act, was ordered. The appeal was allowed and the High Court’s order set aside.

Issues considered

Whether Rule 31(v) of the ITDC Conduct, Discipline and Appeal Rules, 1978, permitting termination by 90 days' notice or pay in lieu, is constitutionally valid under Articles 14 and 16(1).
Whether a employee whose service is terminated under an unconstitutional rule is automatically entitled to reinstatement, or may be awarded compensation instead.
What quantum of compensation is appropriate in lieu of reinstatement for a high‑level managerial employee.

Legislation cited

Income Tax Act, 1961s. 89
Income-tax Rules, 1961s. 21-A

Subjects

Constitutional validityArticles 14 and 16Public sector undertakingService terminationManagerial cadreCompensation in lieu of reinstatementIncome-tax reliefRule 31(v) ITDC

Judgment

A

O.P. BHANDARI
v.
INDIAN TOURISM DEVELOPMENT CORPORATION LTD.
& ORS. B

SEPTEMBER 26, 1986

[M.P. THAKKAR AND S. NATARAJAN, JJ.]

Indian Tourism Development Corporation (Conduct, Discipline
~and Appeal) Rules, 1978: Rule Jl(v)-Constitutional validitjl of-
c
. / Termination of Services by giving ninety days' notice or pay in lieu
thereof-Whether violative of Articles 14 and 16(1).

Labour and services-Public Sector Undertaking-High Manage-
rial cadre-Services of-Illegal termination-Relief agains~Reinstate D
ment or compensation-Courfs discretion-Quantum of compensa-
tion-Factors to be considered. Employee entitled to relief under s. 89 of
the Income-tax Act read with r. 21-A of the Income-tax Rules.

Constitution of India, Articles 12, 14, 32 and 226---Public Sector
Undertaking-A 'State'-High managerial cadre and employees-Dif- E
ferential classification under service rules-Whether permissible.

Rule 3I(v) of the Indian Tourism Development Corporation (Con-
duct, Discipline and Appeal) Rules, 1978 provides that the serviceS of
an employee, who had completed his probationary period and who has
'
·.. ) been confirmed or deemed to be confirmed, may be terminated by F
giving him 90 days' notice or pay in lieu thereof. The services of the
appellant, who was an employee of the respondent-Corporation hold-
ing the post of Manager of a Hotel at the material time were terminated
by Memorandum No. P-B(OP)-22 dated 18th September, 1984, in exer-
cise of the powers under the said rule by giving him pay for three
months in lieu of notice. Aggrieved by the said order the appellant filed G
a writ petition in the High Court assailing the constitutional validity of
r.· 3l(v) of the said Rules, which was summarily dismissed.

Allowing the appeal by special leave, the Court,

HELD: 1. The Indian Tourism Development Corporation is an H

923
924 SUPREME COURT REPORTS [1986] 3 S.C.R.

A instrumentality of the State and, therefore, 'State' within the para- -"
meters of Article 12 of the Constitution of India. [927D-E]

Central Inland Water Transport Corporation Ltd. & Anr. v.
Brojo Nath Ganguly & Anr., [1986] 3 S.C.C. 156 applied.
B
2.1 Rule 31(v) of the Indian Tourism Development Corporation
(Conduct, Discipline and Appeal) Rules, 1978, is unconstitutional and );
void, for such a rule which provides for terminatfon of the services of
the employees of the respondent-Corporation simply by giving ninety
days' notice or by payment of salary for the notice period in lieu of such ~ y
notice, cannot co-exist with Articles 14 and 16(1) of the Constitution of \
c India. The fundamental right embedded in these Articles is not a mere
paper tiger nor is it so ethereal that it can be nullified or eschewed by a sim-
ple device of framing a rule which authorises termination of the services of
an employee by merely giving a notice of termination. [930D-E; 928F; 929F] )'

2.2 The tenure of service of a citizen who takes up employment
D
with the State cannot be made to depend on the pleasure or whim of the
competent authority unguided by any principle or policy, nor his
services allowed to be terminated on an irrational ground arbitrarily or
capriciously. Tue authorities cannot be invested with uncontrolled dis-
criminatory power to practise on considerations not necessarily based
on the welfare of the organisation but possibly based on personal likes
E
and dislikes, personal preferences and prejudices. Provincialism, caste-
ism, nepotism, religious fanaticism, and several other obnoxious factors
may in that case freely operate on the mind of the competent authority
in deciding whom to retain and whom to get rid of. And these dangers
are not imaginary ones. Tuey are very much real in organisations where
there is a confluence of employees streaming in from different States.
(
F
Such a rule as in the instant case, is capable of robbing an employee of '
the dignity, and making him a supine person whose destiny is at the
mercy of the concerned authority. The impugned rule, therefore,
deserves to be quashed. [928H; 929A-B; D-F]

Central Inland Water Transport Corporation Limited & Anr. v.
G
Brojo Nath Ganguly & Anr., [1986] 3 S.C.C. 156; State Electricity·
Board v. D.B. Ghosh, [1985] 2 S.C.R. 1014, referred to.

3.1 Tue Court has full discretion in the matter of granting relief
to suit the needs of the matter at hand. If satisfied that ends of justice so
l
H demand, the Court can certainly direct that the employer shall have the
\

..
0.P. BHANDARI v. I.T.D.C. 925

option not to reinstate, provided the empt.ayer pays reasonable compen- A
sation as indicated by it. [932G I

3.2 In the sphere of employer-employee relations In public sector
undertakings, to which Article 12 of the Constitution of India is
attracted, it cannot be posited that reinstatement mnst invariably follow B
as a consequence of hol1ing that an order of termination of service of an
employee is void. Though in regard to workmen and employees, rein-
:( statement would be a rule, and compensation in lieu thereof a rare
exception, as regards the high level managerial cadre the matter

y deserves to be viewed from an altogether different perspective. [932A-Cl

3.3 The public sector needs to be managed by capable and effi- c
cient personal with unimpeachable integrity and the requisite vision,
who enjoy the fullest confidence of the policy makers. It is but in public
-{° interest that such undertakings or. their Board of Directors are not
compelled and obliged to· entrust their managements to personnel in
whom, on reasonable grounds, they have no trust or faith and. with D
whom they are in a bonafide manner unable to fu11ction harmoniously
as a team. These factors have to be taken into account by the Court at
the time of passing the consequential order. [932E-GJ

In .the Instant case, it cannot be said that the app.rehension voiced
-{ by the respondent-Corporation as regards the negative consequences of
E
reillStatement is unreasonable. The ..relations between the parties
appear to have been strained beyond the point of. no return. The Trade
Union of the employees has lodged a strong protest and even held out a
· threat of strike, in the context of some acts of the appellants. Such

~
unrest among the workmen is likely to have a prejudicial effect on the
working of the undertaking which would pnma facie be detrimental to
F
the larger National Interest. In such a situation neither the undertaking
nor the appellant can improve their image or performance. It is, therefore,
a lit case for granting compensation in lieu of reinstatement. [933A-C]

4. 'In the private sector .the managerial cadre of employees is
altogether excluded from the purview of the Industrial Disputes Act arid
G
similar labour legislations. It can cut the dead wood ;...d can get rid of a
managerial cadre employee in case he is considered to be wanting in
performance or in integrity. Not so in the public sector under a rule
y similar tor. 31(v). Public sector un,dertakings may under the circum-
stances be exposed to irreversible damage at the bands of an employee
belonging to a high managerial cadre on account of the faulty policy H
926 SUPREME COURT REPORTS [1986] 3 S.C.R.
-
A decisions or on account of lack of efficiency or probity of such an
employee. The very existence of the undertaking may be endangered
beyond recall. Such a situation can be remedied by enacting a regula-
tion permitting the termination of the employment of employee belong-
ing to higher managerial cadre, if the undertaking has reason to believe
that his performance is unsatisfactory or inadequate, or there is a
B
bonatide suspicion about his integrity, these being factors which cannot
be called into aid to subject him to a disciplinary proceeding. If termi-
nation is made under such a rule or regulation, perhaps ,it may not
attract the vice of arbitrariness or discrimination condemned by Articles
14 and 16(1) of the Constitution oflndia, inasmuch as the factors opera-
ting in the case of such an employee will place him in a class by himself
c and the classification.would have sufficient nexus with the object sought
to be achieved. [9JlA-H]

[Taking into accoun.t various factors, compensation equivalent to )
3.33 years' ~alary (including allowances as admi,..ible) on the basis of
the last pay and allowances drawn by the appellant was determined to
D be a reasonable ainount to award in lieu of reinstatement, with statu-
tory relief under s. 89 of the Income-tax Act, 1961 read with r. 21-A of
the Income-tax Rules, 1961.] [934C-D; 9360-E]

CIVJL APPELLATE JURISDICTION: Civil Appeal No. 1969
of 1986
E
From the Judgment and Order dated 26.9.1984 of the Delhi High
Court in Civil Writ Petition No. 2329 of 1984.

Govinda Mukhoty,· K.G. Bhagat and Mahabir Singh for the
Appellant.
F
G.B. Pai, O.C. Mathur, Miss Meera Mathur, D.N. Mishra and )
S. Sukumaran for the Respondents.

The Judgment of the Court was delivered by
G
THAKKAR~ J. A CAT---'Scan of this appeal reveals three prob-
lems, viz: ·

I. Whether a rule or regulation framed by a public sector
undertaking which is an authority under the control of
Government of India and is a 'State' within the parameters
H
O.P. BHANDARI v. l.T.D.C. [THAKKAR, J.] 927

of Article 12 of the Constitution of India empowering the A
employer to terminate the services of an employee by
giving notice.of the prescribed period or payment of salary
for the notice period in lieu of such notice is constitutional?

II. If it is uncpnstitutional, whether the employee whose
8
services are· terminated under the said rule or regulation is
always and invariably entitled to reinstatement? Whether
option .to pay COQlpensation in lieu of reinstatement can be
given to the employer in fit cases?

III. What would be the appropriate amount to be reason-
ably awarded in_Iieu of reinstatement? c

These are the questions which call for answers in this appeal.'
-f
Undisputed are the following facts, the same. being incapable
of being disputed: D

(1) The respondent Corporation (I.T,D.C.) is 'State'
within the parameters of Article 12 of the Constitution of
India it beint an instrumentality of the State as per the
law enuncia ed by this Court in Central Inland Water
Transport Corporation Limited & Anr. v. Brojo Nath E
Ganguly and Anr. and Central Inland Water Transport
Corporation Limited & Anr. v. Taran Kanti Sengupta &
/
~
Anr., [1986] 3 S.C.C. 156.
') (2) Appellant was an employee of the Respondent Cor-
'· poration holding the post of Manager of Hotel Ranjit, F
New Delhi, at the material time when his services were
--\ terminated by the impugned order .2

(3) Services of the Appellant were terminated in ex er-
cise of powers under Rule 31 (v) of the ITDC Conduct
Discipline and Appeal Rules 1978, (ITDC rules) by G

y 1.By Special Leave arising out of }V.P. No. 2329of1984 dismissed by the High Court of
Delhi summarily by its order dated 26.9.1984.

2. Annexure P-10, Memorandum No. P-B(OP)-22 dated 18th September, 1984. H
928 SUPREME COURT REPORTS [1986] 3 S.C.R.

A giving pay for 3 months in lieu of 3 months' notice, 3
under the said.nile.

Rule 31 (v) of the I.T.D.C. Rules, the constitutional validity of
which is questioned from _the platform of Articles 14 and lq (1) of the
Constitution of India, provides:-
B
"31. Termination of services:

The services of an employee may be terminated by giving
such notice or notice pay as may be prescribed in the con-
tract of service in the following manner:-
c
i) xx xx
ii) xx xx
D
iii) xx xx
iv) XX XX

v) of an employee who has completed his proba-
tionary period and who has been confirmed or
deemed to be confirmed by giving him 90 days'
E notice or pay in lieu thereof."

This rule cannot co-exist with.Articles 14 and 16 (1) of the Constitution
;_
of India. The said rule must therefore die, so that the fundamental
rights guaranteed by the aforesaid constitutional provisions remain r
alive. For, otherwise, the guarantee enshrined in articles 14 and 16 of I
F the constitution can be set at naught simply by framing a rule authoriz- '
ing termination of an employee by merely giving a notice. In order to
uphold the validity of the rule in question it will have to be held that
the tenure of service of a citizen who takes up employment with the

3. Memorandum No. P-B (OP)-22 dated 18th September, 1984.
G
"Please be advised that your services are no longer required hence stand terminated
with immediate effect.

In accordance with rule No. 31(v) of ITDC Conduct, Discipline and Appeal Rule
1978, you are hereby paid three months pay in lieu of notice and a cheque No. 089988
dated 18.9.84 drawn on State Bank of India, New Delhi, representing a sum of
H Rs. 7 ,950 (Rupees Seven Thousand Nine Hundred and Fifty only) is enclosed."
O.P. BHANDARI v. I.T.D.C. [THAKKAR, J.] 929

.y
State will depend on the pleasure or whim of the compt<_tent authority A
unguided by any principle or policy. And that the services of an
employee can be terminated even though there is no rational ground
for doing so, even arbitrarily or capriciously. To uphold this right is to
accord a "magna carta" to the authorities invested with these powers
to practise uncontrolled discrimiitation at their pleasure and caprice on
considerations not necessarily based on the welfare of the orgl!nisation B

)( but possibly based on personal likes and dislikes, personal preferences
and prejudices. An employee may be retained solely on the ground
that he is a sycophant and indulges in. flattery, whereas the services of
one who is meritorious (but wh6 is wanting in the art of sycophancy
~

f and temperamentally incapable of indulging in flattery) inay be termi-
nated. The power i:nay be exercised even on the unarticulated ground c
that. the former belongs to the same religious faith or is the disciple of
the same religious teacher or holds opinions congenial to him. The
power may be exercised depending on whether or not the concerned
employee belongs to the same region, or to the same caste as that of
the authority exercising the power, of course without saying so. Such
power may be exercised even in order to make way for another emp· D
loyee who is a favourite of the concerned authority. Provincialism,
casteism, nepotism, religious fanatism, and several other obnoxious
factors may ill that case freely operate on the mind of the competent
authority in deciding whom to retain and. whom to get rid of. And
these dangers are not imaginary ones.· They are very much real in
organisations where there is a confluence of employees streaming in E
from different states Such a rule is capable of robbing an employee of
his dignity, and making him a supine per~n whose destiny is at the·
.;:
mercy of the concerned authority (whom he must humour) notwith-
standing the constitutional guarantee enshrined in Articles 14 and 16
) of the Constitution of India: To hold otherwise is to hold that the
F
fundamental right embedded in Articles 14 and 16 (1) is a mere paper
tiger and that it is so ethereal that it can be nullified or..eschewed by a
-\ simple device of framing a rule which authorizes termination of the
service of an employee by merely giving a notice of termination. •
Under the circumstances the rule in question must be held to be
unconstitutional and void. This Court has struck down similar rules in
similar-situations. In State Electricity Board. v. D.B. Ghosh, (1985] 2 G
S.C.R. 1014, Chinnappa Reddy J. speaking for a three-Judge Bench of
this _Court has observed that a (similar) regulation,' authorizing the

4. Regulation 34 of Regulations framed by West B'engal State Electricity Board reading
thus: H
930 SUPREME COURT REPORTS [1986] 3 S.C.R.

A tennination of the services of a pennanent employee, by serving three
months' notice or on payment of salary for the corresponding period in
lieu thereof, was ex facie 'totally arbitrary' and 'capable of vicious
discrimination'. And that it was a naked 'hire and fire' rule and parel-
Iel of which was to be found only in the "Henai'y VIII clause" which
deserved to be banised altogether from employer-employee relation-
B
ship. The regulation thus offended Article 14 of the Constitution of
India and deserved to be struck down on that account. In Central
Inland Water Transport Corporation Limited and Anr. v. Brojo Nath
Ganguly and Another AND Central Inland Water Transport Corpora-
tion Limited & Anr. v. Tarun Kanti ·Sengupta and Anr. .(Supra) a
Division Bench of this Court has struck down a similar rule 5 in so far as
c it authorized tennination of employment by serving a notice there-
under as being violative of article 14 of the Constitution of India, inter
alia, in as much as it was capable of being selectively applied in a
vicious manner by recourse to 'pick and choose' formula.

D There is, under the circumstances, no escape from the conclusion
that Rule 31(v) of the aforesaid ITDC rules which provides for termi-
nation of the services of the employees of the respondent corporation
simply by giving 90 days' notice or by payment of salary for the notice
period in lieu of such notice, deserves to be quashed. As the occasion
so demands, we feel constrained to place in focus and highlight an
E important dimension of the matter. The impugned regulation is ex-
tremely wide in its coverage in the sense that it embraces the 'blue
collar' workmen, the 'white collar' employees, as also the 'gold collar'
(managerial cadre) employees of the Undertaking. In so far as the
'blue collar' and 'white collar' employees are concerned, the quashing
does not pose any problem. In so far as the 'gold collar' (managerial (
F cadre) employees are concerned, the consequence of quashing of the '

"34. In case (_}f a permanent e1nployees, his services may be terminated by serving
three months' notice or on payment of salary for the corresponding period in lieu
thereof."

5. Rule 9 (i) of (Service, Discipline and Appeal) Rules of 1979 of Central Inland Water
G Transport Corporation Ltd. reading:-

"9. Terminatiion of employment for Acts other than misdemeanour.--{i) The emp-
loyment of a permanent employee shall be subject to termination on three' months'
notice on either side. The notice shall be in writing on either side. The company may
pay the equivalent of three months' basic pay and dearness allowance,. if any, in lieu
of notice or may deduct a like amount when the employee has failed to give due
H notice."
0.P. BHANDARI v. I.T.D.C. (THAKKAR, J.] 931
..
regulation calls for some reflection. In the private sector, the manage- A
~ial cadre of employees is altogether excluded from the purview of the
Industrial Disputes Act and .similar labour legislations. The private
sector can cut the dead wood and can get rid of a managerial cadre
employee in case he is considered to be wanting in performance or in
integrity. Not so the public sector under a rule similar to the impugned
rule. Public sector undertakings may under the circumstances be ex- B
posed to irreversible damage at .the hands of a 'gold collar' employee
(belonging to a high managerial cadre) on account of the faulty policy
decisions or on account of lack of efficiency or probity of such an
employee. The very existence of the undertaking may b'e endangered
beyond recall. Neither the capitalist world nor the communist world
(where an employee has to face a death sentence if a charge of corrup- c
tion is established) feels handicapped or helpless and countenances
such a situation. Not being able to perform as per expectation or
failure to rise to the expectations or failure to measure up to the
demands of the office is not misconduct. Such an employee cannot
thus be replaced at all. If this situation were to be tolerated by an
undertaking merely because it belongs to the public sector, it would be D
most unfortunate not only for the undertaking but also for the Nation.
The public sector is perched on the commanding heights of the
National Economy. Failure of the public sector might well wreck the
National Economy. On the other hand the success of the public sector
means prosperity for the collective community (and not for an indi- .
vidual Industrial House). The profits it makes in one unit can enable it E
to run a losing unit, as also to develop or expand the existing units, and
start new units, so as to the generate more employment and produce more
goods and services for the community. The public sector need not
therefore be encumbered with unnecessary shackles or made lame. It
is wondered whether such a situation can be remedied by enacting "'
regulation pennitting the termination of the employment of employee F
belonging to higher managerial cadre, if the undertaking has reason to
believe, that his performance is unsatisfactory or inadequate, or there
is a bonafide suspicion about his integrity, these being factors which
cannot be called into aid to subject him to a disciplinary proceeding. If
termination is made, under such a rule or regulation, perhaps it may
not attract the vice of arbitrariness or discrimination condemned by G
Articles 14 and 16(1) of the Constitution of India, inasmuch as the
factor operating in the case of such an employee will place him in a
class by himself and the classification would have sufficient nexus with
the object sought to be achieved. Of course it is for the· concerned
authorities to tackle the sensitive problem after due deliberation. We
need say no more. H
'
932 SUPREME COURT REPORTS [1986] 3 S.C.R.

A Time is now ripe to turn to the next question as to whether it is
obligatory to direct reinstatement when the concerned regulation is
found to be void. In the sphere of employer-employee relations in
Public Sector Undertakings, to which Article 12 of the Constitution of
India is attracted, it cannot be posited that reinstatement must invari-
ably follow as a consequence of holding that an order of termination of
B
service of an employee is void. No doubt in regard to 'blue-collar'
work!llen and 'white collar' employees other than those belonging to
the managerial or similar high level cadre, reinstatement would be a ''
rule, and compensation in lieu thereof a rare exception. In so far as the
high level managerial cadre is concerned, the matter deserves to be

c
viewed from an altogether different perspective'-a larger perspective
which must take into account the demands of National Interest and the
resultant compulsion to ensure the success of the public sector in its
""I

competitive co-existence with the private sector. The public sector can
never fulfil its life-aim or successfully vie with the private sector if it is )
not managed by capable and efficient personnel with unimpeachable
integrity and the requisite vision, who enjoy the fullest confidence of
D
the 'policy-makers' of such undertakings. Then and then only can the
public sector undertaking achieve the goa!S of

1. maximum production for the benefit of the community,

2. social justice for workers, consumers and the people, and
E
3. reasonable return on the public funds invested in the undertaking.

It is in public interest that such undertakings or their Board of
Directors are not compelled and obliged to entrust their managements
to personnel in whom, on reasonable grounds, they have no trust or (
F
"faith and with whom they are in a bonafide manner unable fo function
harmoniously as a team working arm-in-arm with success in the afore- '
I
said three-dimensional sense as their common goal. These factors have
to be taken into account by the Court at the time of passing the conse-
quential order, for the Court has full discretion in the matter of grant-
ing relief, and the Court can sculpture the relief to suit the needs of the
G matter at hand. The Court, if satisfied that ends of justice so demand,
can certainly direct that th~ employer shall have the option not to
reinstate 'provided the employer pays reasonable compensation as
indicated by the Court.

So far as the facts of this case are concerned, we are satisfied that
H
0.P ..BHANDARI v. 1.T.D.C. [THAKKAR, J.[ 933

this is a fit case for granting compensation in lieu of reinstatement, A
instead of granting 'reinstatement'. Fot, it cannot be said that the ·
apprehension voiced by the respondent-Corporation as regards the
negative consequences of reinstatement is unreasonable. We do not
propose 'to pronounce on the validity or otherwise of the allegations
and counter allegations made by the parties in their respective B
affidavits. Suffice it to say that the relations between the parties ap-
pear to have been strained beyond the point of no return. The .Trade
Union of the employees has lodged a strong protest and even held out
a threat of strike, in the context of some acts of the Appellant. Such
unrest among the workmen is likely to have a prejudicial effect on the
working of the undertaking which would prima facie be detrimental to
the larger National interest, not to speak of detriment to the interest of c
concerned Undertaking. We are not impressed by the submission that
the Union is virtually a 'company's Union. In any case such disputed
questions of facts cannot be resolved in this forum. We are prima facie
satisfied that the apprehension is not ill-founded. What is mo.re, rein-
statement is perhaps not even in the interest of the appellant as he I)
cannot give his best in the less-than-cordial-atmosphere and it will also
result in misery to him, let alone the <;>ther ~ide. Neither the under-
.taking nor the appellant can improve their image· or performance, or,
achieve success. Iri fact it appears to us that both sides will be unhappy
and miserable. These are valid reasons for concluding that compen-
sation in lieu of reinstatement, and not reinstatement, is warranted in
the circumstances of the present case.

Counsel for the appellant having forcefully pressed the claim for
reinstatement, has contended that in case the Court is disinclined to
order reinstatement, the appellant ought to be awarded the full salary
and allowances which would have accrued to him till the date of his
F
superannuation which is more than 8 years away. We think it would be
unreasonable to award 8 years' salary and allowances, as lump sum
compensation in lieu of reinstatement. We consider it unreasonabl~
because:-

(i) To do so would tantamount to paying to the appellant
EVERY MONTH 20% OVER ANT) ABOVE what he G
would have earned if he was continued in service WITH-
OUT DOING ANY WORK as the lump sum payment of 8
years'.salary invested at 15% interest (it being the current
rate of interest) would yield a monthly recurring amount
equivalent to his current monthly salary 'plus' 20%;
H
934 SUPREME COURT REPORTS [1986] 3 S.C.R.
A
{ii) To do so would be tantamount. to paying to him his
present salary etc. plus 20% more every month not only till
his date of retirement but till his death (if he lives longer)
and also to his heirs thereafter, IN PERPETUITY.

B (iii) Besides, the corpus of the lumpsum amount so paid as
.compensation would remain with him in-tact.

Obvious it is, therefore, that the Court would be conferring a x
'bonanza' on him and not compensating him by accepting this formula.
The submission, accordingly, deserves to be repelled unhesitatingly.
c In our considered opinion, compensation equivalent to 3.33
years' salary (including allowances as admissible) on the basis of the
last pay and allowances drawn by the appellant would be a reasonable
amount to award in lieu of reinstatement taking into account the
following factors viz:- '
D
J. The corpus if invested at the prevailing rate of interest
(15%) will yield 50% of the annual salary and allowances.
In other words every year he will get 50% of what he would
have earned by way of salary and allowances with four
additional advantages:
E
(i) He will be getting this amount without working.

(ii) He can work somewhere else and can earn annually
whatever he is worth over and above, getting '50% of the
salary he would have earned.·
·F
(iii) If he had been reinstated he would have earned the
(
salary only upto the date of superannuation (upto 55,
58 or 60 as the case may be) unless he di.ed earlier. As
against this 50% he would be getting annually he would
get not only beyond the date of superannuation, for his
G lifetime (if he lives longer), but even his heirs would get
it in perpetuity after his demise.

(iv) The corpus of lump sum compensation would re-
main intact, in any event.

H No doubt he will not have the advantage of further promotion, but
O:P. BHANDARI v. l.T.D.C. [THAKKAR, J.[ 935
.
then what are his prospects, given the present relationship? Besides, A
the chances of promotion can be set off again.st the risk of a depart-
mental disciplinary proceeding. Factors (i), (ii), (iii) and (iv) are of
such great significance that compensation on the basis of 50% of his
annual salary and allowances is much more to his advantage. We are
thus satisfied that compensation in lieu of reinstatement on the B
aforesaid basis is more than reasonable. We, therefore, airect that:

X I-The Respondent C~rporation shall reinstate the appellant
with full back-wages (including usual allowances), or, at its
option,

II-The Respondent Corporation shall pay to the appellant:- c
(1) Salary including usual allowances for the period
commencing from the date of termination of his service
under the impugned ordef till the date of payment ·of
ci>mpensation equivalent to 3.33 years' salary including D
usual allowances to him.

(2) Provident Fund amount payable to the appellant and
retirement benefits computed as on the date of payme!'t
as per clause 1 shall Qe paid to him within 3 months from
the ·said date.
E
III-The appellant shall vacate and make over possession of the
premises provided to the appellant by the respondent-
company before the expiry of 3 months from the date of this
·order or within one month of the day on which payment
under clause II is made, whichever is later.
' . F
""" IV-Respondent shall pay. the costs to the Appellant.

V~Interlm order shall stand vacated subject to the direction
embodied in Clause III. ·
G
VI-Since the amount is being paid in one lump sum, it is.likely
that the employer may take recourse to Section 192 of the
Income-tax Act, 1961 which provides that any person
responsible for. paying any income chargeable under the
head 'Salaries', shall,, at the time of payment, deduct
income-tax on the amount payable at the average rate of H
936 SUPREME COURT REPORTS l1986] 3S.C.R.

A income computed on the basis of the rates in force for the l
financial year in which the payment is made, on the esti-
mated income of the assessee under this head for that finan-
cial year. If, therefore, the employer proceeds ~o deduct
Income-tax as provided by Section 192, we would like to
·make it abundantly clear that the appellant would be
B entitled to relief under Section 89 of the Income-tax Act
which provides that where by reason of any portion of asses- x
see's salary being paid in arrears or in advance by reason of
his having received in any one financial year salary for more
than 12 months or a payment which under the provisions of

c
clause (3) of Section 17 is a profit in lieu of salary, his
income is assessed at a higher rate than that it would
. otherwise have been assessed, the Income-tax Officer shall
~
on an application made to him in this behalf grant such
relief as may be prescribed. The prescribed relief is set out
in Rule 21-A of the Income-tax Rules. The appellant is
r
entitled to relief under Section 89 because compensation
D herein awarded includes salary which has been in arrears as
also the compensation in lieu of reinstatement and the relief
should be given as provided by Section 89 of the Income-tax
Act read with Rule 21-A of the Income-tax Rules. The ap-
pellant is indisputably entitled to the same. If any applica-
lion is required to be made, the appellant may submit the
).·
E same to the competent authority and the Corporation sha!l,
Tax
through its Consultant, .assist the appellant for obtain-
ing the relief.

The appeal is allowed. The order of the High Court is set aside.
•
Order in the aforesaid terms is passed. (
F

P.S.S. Appeal allowed.