Holding

The Board's policy of placing officers in List B and promoting them after they complete the required service does not violate Article 14 and is a valid, equitable exercise of its authority.

Summary

The Supreme Court examined whether the State Bank of India's policy of promoting Middle Management Grade Scale II officers who had not completed the statutory two‑year line assignment and three‑year rural/semi‑urban service, by placing them in a provisional List B and later promoting them after they fulfilled the conditions, violated Article 14 of the Constitution. The High Court had struck down the policy as unconstitutional, but the Court held that the Board’s scheme was a reasonable, equitable measure to remedy the hardship caused by administrative lapses and did not amount to treating unequals as equals. The Court distinguished the case from earlier decisions and emphasized that the policy did not relax essential service conditions but merely gave eligible officers a chance to complete them. Consequently, the High Court’s order was set aside and the appeals were allowed. The Bank was directed to identify officers who voluntarily refused the required postings, segregate them, and prepare Lists A and B for promotion in accordance with the clarified procedure within nine months.

Issues considered

Whether the Board's policy of clubbing officers who had not completed the mandatory line assignment and rural/semi‑urban service with those who had, for promotion purposes, violates Article 14 of the Constitution.
Whether the retrospective application of the 1990 policy to vacancies arising in 1988‑1990 is permissible.
Whether the procedure for preparing confidential and character reports and the promotion committee's assessment complied with principles of natural justice.

Legislation cited

State Bank of India Act, 1955s. 43(1)
State Bank of India General Regulationss. Regulation 55(2)(a)
State Bank of India Officers (Determination of Terms and Conditions of Service) Order, 1979s. Rule 17

Subjects

Article 14EqualityPromotionBanking service conditionsLine assignmentRural serviceEligibility criteriaRetrospective applicationNatural justiceConfidential reports

Judgment

A STATE BANK OF INDIA ETC.
v.
KASHINATH KHER AND ORS. ETC.

FEBRUARY 8, 1996

B [K. 'RAMASWAMY AND G. B. PATTANAIK, JJ.]

Se1vice Law :

State Bank of India Act, 1955/State Bank of India Officers (Detemiina-
C tion of Temis and Conditions of Service) Order, 1979:

S.43( 1)-Rule 17-Promotion from MMGS-II to MMGS-
III-Eligi.bility aite!ia:--Guidelines issued from time to time by way of cir-
culars-Minimum two years in "line assignment" and three years in rural/semi
urban servic~Board anwigi.ng three lists-List 'A' consisting of officers who
D have completed required service of line assignment-List 'B' consisting of
officers who have partly completed the two years se1vice--Officers who have
not completed the rural or semi-urban service not included in list 'B'--Board
gi.ving an opportunity to the Officers who are othe1wise eligi.ble to complete
the requisite conditions-On completion of the requisite service gi.ving promo-
tions-Held : The procedure adopted just, fair and reasonabl~ot violative
E of Art. 14 of the Constitution-Bank would identify the Officers who volun-
talily did not opt to serve in the line assignment of rural/semi-urban service
and eliminate such officers from list 'B'-Thereafter to consider the officers
within the zone of consideration of all the officers in Lists 'A' and 'B' together
and co_nsider them for promotion subject to other relevant crite!ia-Directions
issued.
F
Mohd. Usman & Ors. v. State ofAndhra Pradesh & Ors., [1971) Suppl.
SCR 549 and Y.V. Rangaiah v. /. Sreenivasa Rao, [1983] 3 SCC 284,
distinguished.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4230-31
G of 1994 Etc.
From the Judgment and Order dated 16.4.93 of the Madhya Pradesh
High Court in M.P. No. 1965 of 1990 and 2091 of 1990. ·

R.F. Nariman, R.N. Keshwani, K. Balasubramaniam, AV. Rangam
H and A Ranganadhan for the appellants.
324
~
I

STATE v. KASHINATH KHER 325
-- Mrs. Nisha Bagchi and Ms. Indu Malhotra for the Respondents. A

S.K. Mehta, Dhruv Mehta and Fazlin Anam for Intervenor.

The following Order of the Court was delivered :

These appeals by special leave arise from the orders of the Division B
Bench of the Madhya Pradesh High Court made on August 27, 1993 in
Misc. Petition Nos. 1965/90 and 2091/90. The facts not in dispute are that
the respondents while working as Middle Management Grade Scale II
officers (for short, "MMGS-II") in the State Bank of India, its Bhopal Circle
have challenged the policy of the appellant-Bank dated March 21, 1990 and
August 6, 1990 whereunder the officers who have not completed two years
c
of line assignment and two years Rural/Semi-urban service were to be
considered eligible for promotion to Middle Management Grade Scale III
(for short,"MMGS-III"). The High Court has held that they are ineligible
and such a clubbing of ineligible officers with eligible officers is violative
of Article 14 and accordingly struck down the criteria and given directions D
in the order. Calling in question of the said order, these appeals by special
leave came to be filed.

The Preamble of the State Bank of India, Act 23 of 1955 (for short,
the "Act") envisages establishment of the State Bank of India (for short,
the "Bank") for extending banking facility on a large scale more particularly E
in the rural/s3mi urban area and for diverse other public purposes. Section
43(1) of the Act gives power to the Bank to appoint such number of
officers, advisers or employees as it considers necessary or desirable for
the efficient performance of its functions and to determine the terms and
conditions of their appointment and service. Regulation 55 of the State F
Bank of India General Regulations (for short, the "Regulations") provide
the power of the Local Board ill respect of the staff. Regulation 55(2)(a)
envisages that appointing and/or promoting authority for various
categories/Grades of officers and employe"es shall be such as the Executive
Committee may by general or special order designated from time to time. G
The operation of the Bank is regulated by the Board of Managing Directors
of the Bank which empowers appointment of the Committee. The Manag-
ing Committee consists of the Chief General Manager and such of the
officers designated thereunder. It would appear that the Board or Manag-
ing Committee issues policy directions from time to time. The State Bank
of India Officers (Determination of Terms and Conditions of Service) H
'

A
326 SUPREME COURT REPORTS [1996] 2 S.C.R.

Order, 1979 (for short, the "Rule") was made in exercise of the aforesaid
--
power under Section 43(1). Rule 17 provides procedure for promotion. It
envisages that :

"Promotions to all grades of officers in the Bank shall be made in
accordance with the policy laid down by the Central Board or the
B Executive Committee from time to time.

EXPLANATION : For the avoidance of doubts, it is clarified that
the provisions of this paragraph shall also apply to promotions of
any category of employees to the junior management grade."
c The Executive Committee issued circulars from time to time. In 1990,
for promotion from MMGS-II to MMGS-III effective from August 1, 1986,
-
the eligibility criteria laid. down is as under :

(a) The eligibility criteria will be reckoned with reference to a
D date of eligibility which will normally be 1st of August every
year.

(b) 2 years service as MMGS-II and both parts of C.A.l.l.B.;or

3 years' service as MMGS-11 and Part I of C.A.I.I.B.; or
E
5 years' service as MMGS-II and no Part of the C.A.I.I.B.

(c) The officer should have completed satisfactorily 2 years of
line assignment.

F NOTE

For the promotions effective from the year 1938 onwards, to -..,.
become eligible for promotion to MMGS-III, an officer should
have also completed 3 years' stay in rural/semi-urban branch."

G In 1990, by memo date March 21, 1990 general guidelines for promo-
tion to MMGS-III were envisaged which read as under :

"Line Assignment:

Satisfactory completion of Line assignment as Branch Manager or
-
H as Manager of a business elivision for a minimum period of 2 years
STATEv. KASHINATHKHER 327

is a pre-requisite for consideration for promotion. Officers who A
have not completed the full 2 years tenure of the line assignment
but are otherwise eligible for consideration for promotion to MMG
Scale III would have to be placed in the line assignment position
for a minimum period of not less than six months so as to complete
or exceed a minimum period of two years service in the line
B
assignment.

Rural/Semi Urban Se1vice in a Branch:

As approved by the Executive Committee of the Central Board at
its meeting held on 21.10.1989, it was advised that as per the
Government of India guidelines, all officers JMG Scale I and
c
MMG Scale II are required to put in the undernoted minimum
stipulated service in a Rural or Semi Urban branch before they
are considered for promotion to MMG Scale II and MMG Scale
III .
D
Grade of Stipulated period of Se1vice
Officer

JMG Scale I Minimum 2 years service in a rural branch.

MMG Scale II Minimum 3 years service in a rur:;.l and/or E
semi-urban branch including 2 years rural
service as officer, JMG Scale I.

This stipulation is effective for promotions to be made from 1988
onwards and shall be one of the eligibility criteria for promotions
to MMG Scale II and MMG Scale III with effect from 1.8.1988 F
- and onwards."

In the light of these guidelines, the promotions are to be considered
and the eligibility criteria prescribed thereunder regulates the eligibility of
the candidates for promotion. The case of the respondent is that for the G
promotions that have arisen from 1988, 1989 and 1990, as per the rules and
the policy, the officer in MMGS-11 should put in minimum of two years in
"line assignment" and three years in rural/semi urban service even for
consideration. Line assignment has been stated as exposure to work in the
line or branches like Branch Managers and Managers of the segmental
division both of which involved in discharging budgetary responsibility and H
328 SUPREME COURT REPORTS (1996] 2 S.C.R.

A fulfillment of targets in banking business. Rural/Semi urban service would
mean working experience on being posted in various area where the
population is less than 10,000 in rural area and more than 10,000 but less
than one lakh as a semi urban area.

It would thus be seen that for the candidate to become eligible for
B consideration for promotion the criteria required under the guidelines
requires to be fulfilled. But it is seen from the record that for reasons of
non-availability of the posts or due to non enforcement of the conditions,
many of the officers have not had the benefit of working in the line
assignment and the rural service. Consequentially, the question arose
C whether rule requires to be adhered to or the policy requires to be
changed. In that behalf the Board has decided to relax the condition for
the posts as one time measure to· give the chance to the officers to fulfill
the conditions. Nonetheless, the conditions have not been fulfilled due to
the diverse reasons which include mismanagemenLat circle levels as noted
D by the Board. Consequentially, they have decided to arrange three lists.
List A consists of officers who have put in two years required service of
line assignment; in list B composing of officers who have not completed
two years service but have done partly and list 'E' consists of officers who
have not had the service at all. The officers who have not completed the
rural or semi-urban service are not included in list B. But they are separate-
E ly dealt with. In this case we are concerned with List B officers and we are
not concerned with List 'C' officers.

It is stated by the Board in their circular that in spite of repeated
instructions given to the circles, they have not complied with the directions
F of posting the officers to the line assignment as well as rural/semi-urban
services. As a consequence, heart burning was brewing up among the
officers who did not have the opportunity to serve in the line assignment
and also rural/semi-urban services. Consequentially, the Board had
-
decided that all those who were required to be promoted would be
G considered subject to the fulfillrrient of the eligibility criteria. Officers who
have completed the required service and found fit for promotion would be
promoted immediately; officers who have not completed two service in the
line assignment and also in rural/seini~urban .service would be considered
for promotion and if found fit would be selected, those put in list 'B' would
be promoted only on their completing their required service. Thereafter,
H their placement on completion of the above service conditions would be
STATEv. KASHINATIIKHER 329

below his immediate senior in MMGS-11 but promoted earlier to them in A
MMGS-III.

The respondents, therefore, have contended in the High Court that
clubbing the officers in List B with those of List A is unconstitutional
violating Article 14, being unequals they are treated as equals with them
and that, therefore, it is not permissible in law. That contention was found B
favour with the High Court. It is contended by Shri R.F. Nariman, the
learned senior counsel for the appellant that the policy adopted by the
appellant was not in relaxation of the essential conditions of the service,
but providing eligibility for the officers who for fortuitous circumstance of
not completing the service were given opportunity of being considered
eligible for promotion and thereby making everyone on par so as to avoid
c
hardship or injustice for no fault of theirs to those officers who are
otherwise eligible, may be some of them more seniors to the officers who
have been placed in List A Thereby there is no injustice meted out to
anyone.
D
Ms. Nisha Bagchi, learned counsel for the respondents contended
that the entire exercise is illegal. According to her, under the Rules, having
made the satisfactory completion of line assignment and rural/semi-urban
service being a condition precedent, unless officers in MMGS-11 complete
those conditions, they are not eligible to be considered; ineligibles cannot
E
be made eligibles by virtue of instructions issued by the Board which is
inconsistent with the rules. The consideration for promotion should be
made as and when vacancies have arisen. These directions by way of
circulars were issued by the Board in 1990 for the vacancies that have
arisen in 1988, 1989 and 1990 and that, therefore, the criteria cannot be
applied to the vacancies that have arisen in 1988, 1989 and 1990. It may be F
prospective for the vacancies to be filled up in future. She also contended
that when the respondents filed the Writ Petitions in the High Court
assailing the correctness thereof, the Board had come forward with the
relaxation subsequently to undo the mischief which the respondents had
pointed out.
G
Having considered the respective contentions, the question arises
whether the action taken by the appellant in making the officers who have
not completed the required service of the line assignment and rural/semi-
urban service and considering their case, found them fit and placed them
in list Bis violative of Article 14? We find that the stand taken by the Bank H
(-
330 SUPREME COURT REPORTS [1996] 2 S.C.R. \

A appears to be just and fair on the facts of the case. It would be seen that
from 1986 onwards no promotions have been made. Despite directions
issued in 1986 as one time measure directing all the circles to post the
officers to line assignment and for rural/semi urban assignment from 1989,
no steps have been taken at the circle level to comply with the directions
given by the Board and the Executive Committee. Consequentially officers,
B who are otherwise eligible and entitled to be considered were made
ineligible for no fault of theirs. Under those circumstances, it necessitated
to relieve hardship to such officers due to the inaction or skillful manoeuvre
at circle level. Fortuitous circumstances in the case of some officers who
completed the criteria would be a ground for th.em to scale march over
officers who are otherwise eligible and they cannot be made to suffer
c injustice; denial of their legitimate expectation of consideration of their
cases for promotion would be unjust and unfair. It is true as rightly
contended by Ms. Nisha, that the criteria being conditions of service cannot
be relaxed. Service conditions being essential conditions cannot be relaxed
and it is not the case of the appellant-Bank that they have done that
D exercise. What the Board has done is giving an opportunity to the officers,
who are otherwise eligible, to complete the required service conditions and
then would be given promotion, on completion of requisite conditions
thereof. In view of the fact that they did not have the opportunity to serve
and complete the qualifying service, with a view to see that those who had
the advantage of completing the service would not scale a march over the
E seniors, they equally adopted an equitable principle of putting the officers
in list B and giving them seniority after promotion below his immediate
senior in MMGS-11 so that injustice will not be meted out to such officers
for r..o fault of them. The procedure adopted by the Bank is just, fair and
reasonable.
F
The question is: whether such exercise is in violation of Article 14.
The contention of Ms. Nisha is that weightage ·provided in the criteria for
consideration by the committee get defeated is without force. The commit-
tee is required to consider the overall experience for the period specified
G therein. The mere fact that the fortuitous factor of officers officiating in
MMGS-III would not be a wedge to walk over those who did not have such
fortuitous opportunity nor should they be denied of equal opportunity. This
Court had considered an analogous situation in Mohd. Usman & Ors. v.
State of Andhra Pradesh & Ors., [1971] Suppl. SCR 549. Therein, the UDCs
and LDCs in a district were unit-wise. The LDCs were entitled to be
H considered for promotion as UDCs. The UDCs were eligible to be con-
STATE v. KASHINATH KHER 331

sidered for promotion as Grade II Sub-registrars in the Registration A
Department of Andhra Pradesh. Grade II Sub-Registrars was Statewise
cadre while LDCs and UDCs were districtwise cadre. In some Districts
where persons appointed as LDCs though seniors, due to lack of oppor-
tunities, could not get the chance to become UDCs but they get the
chances lately. In some districts, due to frequ,ent successive vacancies,
B
LDCs appointed later to those appointed in other districts would get

-- chances for promotion as UDCs over their counter part seniors in others
districts thereby they would steal a march over LDCs working in other
districts. With a view to see that all of them would become eligible for
consideration as Sub-Registrars Grade II, the UDCs and LDCs were
clubbed together as a unit and for Statewise promotion as Sub-Registrar c
Grade II. That criteria was adopted to avoid hardship and injustice to such
of those senior LDC candidates. When the validity of the rule was ques-
tioned, the High Court declared rule 5 of the Special Rules to be ultra vires
of Article 14. When the matter had come up, this Court had held thus :
D
"On the facts before us we are unable to agree that for the purpose
of recruitment with which we are concerned herein the State
should have classified the U.D.Cs. and L.D.Cs. separately. If the
State had treated the U.D.Cs as being superior to the L.D.Cs. for
the purpose of that recruitment it would have resulted in a great
deal of injustice to a large section of the clerks. The fortuitous E
circumstances of an officer in a particular district becoming a
U.D.C. would have given him an undue advantage over his seniors
who might have as efficient or even more efficient than himself,
merely because they chanced to serve in some other district. For
the reasons mentioned above, we do not think that in the present F
case the State can be said to have treated unequals as equals. The
rule of equality is intended to advance justice by avoiding dis-
crimination. In our opinion the High Court by overlooking the
reason behind Rules 5 came to the erroneous conclusion that the
said rule violated Art. 14 of the Constitution."
G
It would thus be seen that it is not a case of ineligible persons made
eligible, but a case of giving opportunities to those officers, who for no fault
of theirs were not made eligible to be considered and given opportunity to
be considered for promotion and after consideration, on fulfillment of the
service of line assignment and rural/semi-urban service for a minimum of H
332 SUPREME COURT REPORTS [1996] 2S.C.R.

A two years were promoted to the MMGS-III. Thus, we hold that the policy
adopted by the Board is not violative of Article 14 of the Constit1;ltion. But
--
it must be remembered that in considering whether the candidate has
completed the line of assignment or rural/semi-urban service for the re-
quired period, a clear demarcation be drawn between the officers who
either due to volitious refusal to serve and those on account of inaction or
B deliberate omission on the part of the controlling authority did not have
an opportunity as the case may be, to get the required service qualifica-
tions. Therefore, an exercise requires to be done by the appellant to
identify this grouping and consider all those candidates who have otherwise
become eligible but did not get opportunity, for no fault of theirs, to secure
c the service qualification but should be denied to those who volunteered not
to go for line assignment or rural or semi-urban service as the case may
be, and then to consider according to the criteria prescribed under the
rules or the circulates issued from time to time.

D It is true as contended by Ms. Nisha, learned counsel, that due to the
accelerated promotions, the line-up promotions have been scaled in quick
succession from Scale II to Scale III and then to Scale IV but, unfortunate-
ly, no factual foundation has been placed before us to find out as to when
and under what circumstances such exercise came to·be made and in what
circumstances the accelerated promotions came to be given. But these are
E the matters to be looked into after doing the exercise as indicated above.

Learned counsel for the respondents is not right to contend that the
vacancies have arisen in 1988, 1989 and 1990 and that the rule of relaxation
cannot be given in 1990 to the vacancies that have arisen in 1988, 1989 and
F 1990 and be considered according to the rules in vogue when the vacancies
had arisen. It is seen that the policy decision was taken for the first time
on March 21, 1990 effective from August 1, 1988. In other words, the
promotions are required to be considered retrospectively in the light of the
decision to fill up the vacancies existing as on August, 1988. Therefore, it
is not a case of applying a rule which were made later to a vacancy which
G was existing anterior thereto. Equally, it is not correct to state that this
principle is an unjust principle. It is true that this Court in Y. V. Rangaiah
v. J. Sreenivasa Rao, [1983) 3 SCC 284 had considered the question of
retrospective application of the rule. to the vacancies existing prior to the
rules, in paragraphs 7 and 8 of the Judgment. But in that case, the rule was
H in vogue for Sub-Registrars Grade II in Registration Department of
STATE v. KASHINATH KHER 333

Andhra Pradesh. But no list was prepared, promotion was not made A
according to the existing rules. The list of eligible candidates was prepared
according to the amended Rules, consequential to the zonal system intro-
duced in Andhra Pradesh under Article 371D of the Constitution and
Presidential Order. It was held that the vacancies that had arisen prior to
making the amendment to the Rules should be filled in accordance with
B
the rules that were in vogue prior to the amendment and vacancies that
arose subsequently should be filled according to the amended rules. That
situation does not apply to the factual matrix.

It would appear that the confidential reports and character rolls are
being prepared by the officers of the same rank in the same MMGS II c
working in the establishment department over the same cadre officer
working elsewhere and the reporting officers are the same. Ms. Nisha is
right and the High Court is well justified in holding that such a procedure
is violative of the principles of natural justice. Such procedure and practice
is obviously pernicious and pregnant with prejudices and manipulation D
violating the principles of natural justice and highly unfair. The object of
confidential report is two fold, i.e. to give an opportunity to the officer to
remove deficiencies and to inculcate discipline. Secondly, it seeks to serve
improvement of quality and excellence and efficiency of public service. This
Court in Delhi Transp01t C01poration 's case pointed out pitfalls and in·
sidious effects on service due to lack of objectives by the controlling officer. E
Confidential and character reports should, therefore, be written by supe·
rior officers higher above the cadres. The officer should show objectivity,
impartiality and fair assessment without any prejudices whatsoever with
highest sense of responsibility alone to inculcate devotion to duty, honesty
and integrity to improve excellence of the individual officer. Lest the F
officers get demoralised which would be deleterious to the efficacy and
efficiency of public service. Therefore, they should be written by a superior
officer of high rank. Who are such high rank officers is for the appellant
to decide. The appellants have to prescribe the officer competent to write
the confidentials. There should be another higher officer in rank above the G
officer who was written confidential report to review such report. The
appointing authority or any equivalent officer would be competent to
approve the confidential reports or character rolls. This procedures would
be fair and reasonable. The reports thus written would form basis for
consideration for promotion. The procedure presently adopted is clearly
illegal, unfair and unjust. H
334 SUPREME COURT REPORTS [1996) 2 S.C.R.

A It would also appear from the record that the confidential reports
submitted were adopted in toto by the Committee considering promotion
without any cross verification from the character rolls or the record and
independent assessment of merit and ability. That would also be clearly
illegal. Being a competent authority to consider the claim of the candidates,
the Committee for promotion has to independently assess the merit and
B
ability of each candidate from the reports and the records etc. consistent
with the weightage prescribed in the rules and then to determine the
relative merit and ability of officers and then to arrange order of merit of
the officers for promotion. Being selection posts, the selection record also
must indicate reasons, however, brief they may be, so that when tested by
C judicial review, the'Court would be better assisted by such record to reach
correct decision. in law. This exercise should also be done by the appellant.
If the confidential reports written earlier are by superior officers, then the
entire record could be secured by the controlling officers. They should be
considered by the promotion Committee and each case must be examined
D in the light of the record of each officer. It would be desirable to prepare
a columnar statement with all relevant columns. The C.Rs. and other
relevant record should be preserved. The matters considered by the
promotion committee should also be preserved.

Accordingly, we hold that the High Court was not right in setting
E · aside the promotions and giving directions to promote all the officers in
list A and then to consider the officers in list B and then to go on doing
the exercise as indicated in the order. The promotions made remain ad hoc
pending regular consideration and promotion. The appellant is directed to
identify the officers who voluntarily did not opt to serve in the line
F assignment or rural/semi-urban service and then eliminate such officers
from List B, and put them in List 'C'. Thereafter, consider the officers
within the zone of consideration of all the officers in List A and B together,
who are eligible to be considered for promotion subject to other relevant
criteria. Those found fit to be promoted be put in List 'A' and 'B'
respectively and take action thereon.
G
The appeals are accordingly allowed and the orders of the High
Court are set aside. The appellant should consider the case of all the
officers in accordance with law now laid down. Prepare A and B lists and
promote all the officers in List A Officers in List B, be posted in line
H assignment and also rural/semi-urban service. On completion of the re-
STATE v. KASHINATH KHER 335

quired service be given promotion to MMGS-111. They would be placed in A
seniority below their respective immediate senior in MMGS-11. The appel-
lant is directed to complete the exercise within a period of nine months
- J from the date of the receipt of this order. No costs.

Application for intervention is allowed.
B
G.N. Appeals allowed.

--