ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & ORS. v. RADHEY SHYAM PANDEY

The Judgment of the Court was delivered by A ARUN MISHRA, J.

1Copy pinpoint1. 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

2Copy pinpoint2. 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.

3Copy pinpoint3. 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

4Copy pinpoint4. 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 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 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

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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.

5Copy pinpoint5. 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 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 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.

6Copy pinpoint6. 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.

7Copy pinpoint7. 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 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.

8Copy pinpoint8. 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 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.

9Copy pinpoint9. (a) Radhey Shyam Pandey questioned the refusal of the bank to pay pension, vide communication dated 26.9.2006 in the writ application 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, 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 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 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

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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, 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 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

10Copy pinpoint10. 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

11Copy pinpoint11. (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

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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.

12Copy pinpoint12. 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 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 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 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 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).

13Copy pinpoint13. The appellants further submitted that 20 years’ period is 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.

14Copy pinpoint14. 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 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 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 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 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

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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.

15Copy pinpoint15. 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 pension unfairly and arbitrarily contrary to the essential terms of the scheme.

16Copy pinpoint16. 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 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 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 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

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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 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 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 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 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 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 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

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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.”

17Copy pinpoint17. The letter dated 31.8.2000 annexed to memorandum submitted 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 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

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18Copy pinpoint18. 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 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 may please be sent to Banking Division for record.

Yours faithfully C Sd/- (U.P. SINGH) DIRECTOR (IR)”

19Copy pinpoint19. 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)

20Copy pinpoint20. 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

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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 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 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 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 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 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.”

21Copy pinpoint21. 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 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 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 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.

22Copy pinpoint22. 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

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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 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 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 that these employees also get the benefit of pension. Yours faithfully, sd/- (U.P. Singh) G Director (IR)”

23Copy pinpoint23. 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.]

24Copy pinpoint24. 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 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 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.

25Copy pinpoint25. 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

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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 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, 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, 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.]

26Copy pinpoint26. It is clear from Rule 22 that pension is admissible to an 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 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

27Copy pinpoint27. 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.

28Copy pinpoint28. 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.

29Copy pinpoint29. 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

p. 840

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.

30Copy pinpoint30. 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.

31Copy pinpoint31. 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)

32Copy pinpoint32. 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 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 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 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.”

33Copy pinpoint33. 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

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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 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.

34Copy pinpoint34. It is apparent that the very fulcrum of the scheme was a felt 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 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 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)

35Copy pinpoint35. 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

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36Copy pinpoint36. 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 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 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 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)

37Copy pinpoint37. 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

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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.”

38Copy pinpoint38. 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.

39Copy pinpoint39. 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 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 computation of pension. The formula for computation for a pension is provided in Rule 23 of the SBI Pension Rules.

40Copy pinpoint40. 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 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 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 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 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, 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.

41Copy pinpoint41. 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

42Copy pinpoint42. 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

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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 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 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 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;]”

43Copy pinpoint43. Thus, it is apparent that the Central Board of SBI could not 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 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.]

44Copy pinpoint44. 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

45Copy pinpoint45. 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 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.

46Copy pinpoint46. The VRS scheme was not floated by the SBI on its own 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 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.

47Copy pinpoint47. 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

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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 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 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

48Copy pinpoint48. 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.

49Copy pinpoint49. 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 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 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

50Copy pinpoint50. (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 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 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 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

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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 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 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 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 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

p. 854

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 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 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 contracts, in Section 208 at page 107, as follows: “§ 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 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 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 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

p. 856

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 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 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 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, 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 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 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.