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

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A It will not allow a party to exempt himself from his liability at common law when it would be quite unconscionable for him to do so.” (emphasis supplied) In the above case, the Court of Appeal negatived the defense B of the indemnifier that the indemnity clause did not cover the negligence of the indemnified. It was in Lloyds Bank Ltd. v. Bundy (1974) 3 All ER 757 that Lord Denning first clearly enunciated his theory of “inequality of bargaining power.” He began his discussion on this part of the case by stating (at page 763) : C “There are cases in our books in which the courts will set aside a contract, or a transfer of property, when the parties have not met on equal terms, when the one is so strong in bargaining power and the other so weak that, as a matter of common fairness, it is not right that the strong should be allowed to push the weak to the wall. Hitherto those exceptional cases have been treated each as a separate category in itself. But I think the time has come when we should seek to find a principle to unite them. I put on one side contracts or transactions which are voidable for fraud or misrepresentation or mistake. All those are governed by settled principles. I go only to those where there has been inequality of bargaining power, such as to merit the intervention of the court.” (emphasis supplied) He then referred to various categories of cases and ultimately deduced therefrom a general principle in these words (at page 765): “Gathering all together, I would suggest that through all these instances there runs a single thread. They rest on ‘inequality of bargaining power.’ By virtue of it, the English law gives relief to one who, without independent advice, enters into a G contract on terms which are very unfair or transfers property for a consideration which is grossly inadequate, when his bargaining power is grievously impaired by reason of his own needs or desires, or by his own ignorance or infirmity, coupled with undue influences or pressures brought to bear on him by or for the benefit of the H

ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 859 ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]

other. When I use the word ‘undue,’ I do not mean to suggest that the principle depends on proof of any wrongdoing. The one who stipulates for an unfair advantage may be moved solely by his own self-interest, unconscious of the distress he is bringing to the other. I have also avoided any reference to the will of the one being ‘dominated’ or ‘overcome’ by the other. One who is in extreme need may knowingly consent to a most improvident bargain, solely to relieve the straits in which he finds himself. Again, I do not mean to suggest that every transaction is saved by independent advice. But the absence of it may be fatal. With these explanations, I hope this principle will be found to reconcile the cases.” C (emphasis supplied) (e). The Court clearly held that the contracts, which are the outcome of misrepresentation, cannot be enforced, and inequality of bargaining power merit the intervention of the court. In A. Schroeder Music Publishing Co. Ltd. v. Macaulay (formerly Instone) (1974) 1 D WLR 1308, Lord Diplock made the following observations at pp. 1315- 16 thus: “84. …. “My Lords, the contract under consideration in this appeal is one whereby the respondent accepted restrictions upon the way in which he would exploit his earning power as a songwriter for the next ten years. Because this can be classified as a contract in restraint of trade the restrictions that the respondent accepted fell within one of those limited categories of contractual promises in respect of which the courts still retain the power to relieve the promisor of his legal duty to fulfill them. In order to determine whether this case is one in which that power ought to be exercised, what your Lordships have in fact been doing has been to assess the relative bargaining power of the publisher and the songwriter at the time the contract was made and to decide whether the publisher had used his superior bargaining power to exact from the songwriter promises that were unfairly onerous to him. Your G Lordships have not been concerned to inquire whether the public have in fact been deprived of the fruit of the song writer’s talents by reason of the restrictions, nor to assess the likelihood that they would be so deprived in the future if the contract were permitted to run its full course. H

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A It is, in my view, salutary to acknowledge that in refusing to enforce provisions of a contract whereby one party agrees for the benefit of the other party to exploit or to refrain from exploiting his own earning power, the public policy which the court is implementing is not some 19th century economic theory about the benefit to the general public of freedom of trade, but the protection of those whose bargaining power is weak against being forced by those whose bargaining power is stronger to enter into bargains that are unconscionable. Under the influence of Bentham and of laissez faire the courts in the 19th century abandoned the practice of applying the public policy against unconscionable bargains to contracts generally, as they had formerly done to any contract considered to be usurious; but the policy survived in its application to penalty clauses and to relief against forfeiture and also to the special category of contracts in restraint of trade. If one looks at the reasoning of 19th-century judges in cases about contracts in restraint of trade one finds lip service paid to current economic theories, but if one looks at what they said in the light of what they did, one finds that they struck down a bargain if they thought it was unconscionable as between the parties to it and upheld it if they thought that it was not. So I would hold that the question to be answered as respects E a contract in restraint of trade of the kind with which this appeal is concerned is: ‘Was the bargain fair?’ The test of fairness is, no doubt, whether the restrictions are both reasonably necessary for the protection of the legitimate interests of the promisee and commensurate with the benefits secured to the promisor under the contract. For the purpose of this test, all the provisions of the contract must be taken into consideration.” (f). A term which exempts the stronger party from his ordinary common law liability should not be given effect except when it is reasonable, as observed in Levison v. Patent Steam Carpet Co. Ltd., (1949) 2 All ER 581 at 584 relied upon in Brojo Nath Ganguly (supra) thus: “85. The observations of Lord Denning, M.R., in Levison v. Patent Steam Carpet Co. Ltd. are also useful and require to be quoted. These observations are as follows (at page 79) :

ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 861 ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]

“In such circumstances as here the Law Commission in A 1975 recommended that a term which exempts the stronger party from his ordinary common law liability should not be given effect except when it is reasonable: see The Law Commission and the Scottish Law Commission Report, Exemption Clauses, Second Report (1975) (August 5, 1975), Law Com. No. 69 (H.C. 605), B pp. 62, 174; and there is a Bill now before Parliament, which gives effect to the test of reasonableness. This is a gratifying piece of law reform: but I do not think we need wait for that Bill to be passed into law. You never know what may happen to a Bill. Meanwhile, the common law has its own principles ready to hand. In Gillespie Bros. & Co. Ltd. v. Roy Bowles Transport Ltd. C (1973) QB 400, I suggested that an exemption or limitation clause should not be given effect if it was unreasonable, or if it would be unreasonable to apply it in the circumstances of the case. I see no reason why this should not be applied today, at any rate in contracts in standard forms where there is inequality of bargaining power.” D (g). Courts have to construe the contracts according to the tenor. In this regard, in Brojo Nath Ganguly (supra), the Court considered the question thus: “87. In Photo Production Ltd. v. Securicor Transport Ltd. (1980) AC 827, a case before the Unfair Contract Terms E Act, 1977, was enacted, the House of Lords upheld an exemption clause in a contract on the defendants’ printed form containing standard conditions. The decision appears to proceed on the ground that the parties were businessmen and did not possess unequal bargaining power. The House of Lords did not, in that case, reject the test of reasonableness or fairness of a clause in a contract where the parties are not equal in bargaining position. On the contrary, the speeches of Lord Wilberforce, Lord Diplock, and Lord Scarman would seem to show that the House of Lords in a fit case would accept that test. Lord Wilberforce, in his speech, after referring to the Unfair Contract Terms Act, 1977, said (at page 843) : “This Act applies to consumer contracts and those based on standard terms and enables exception clauses to be applied with regard to what is just and reasonable. It is significant that Parliament refrained from legislating over the whole field of H

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A contract. After this Act, in commercial matters generally, when the parties are not of unequal bargaining power, and when risks are normally borne by insurance, not only is the case for judicial intervention undemonstrated, but there is everything to be said, and this seems to have been Parliament’s intention, for leaving the parties free to apportion the risks as they think fit and for respecting their decisions.” (emphasis supplied) Lord Diplock said (at page 850-51): “Since the obligations implied by law in a commercial contract are those which, by judicial consensus over the years or by Parliament in passing a statute, have been regarded as obligations which a reasonable businessman would realise that he was accepting when he entered into a contract of a particular kind, the court’s view of the reasonableness of any departure from the implied obligations which would be involved in construing the express words of an exclusion clause in one sense that they are capable of bearing rather than another, is a relevant consideration in deciding what meaning the words were intended by the parties to bear.”

E (emphasis supplied) Lord Scarman, while agreeing with Lord Wilberforce, described (at page 853) the action out of which the appeal before the House had arisen as “a commercial dispute between parties well able to look after themselves” and then added: “In such a F situation what the parties agreed (expressly or impliedly) is what matters, and the duty of the courts is to construe their contract according to its tenor.”

88. As seen above, apart from judicial decisions, the United States and the United Kingdom have statutorily recognised, at least in certain areas of the law of contracts, that there can be unreasonableness (or lack of fairness, if one prefers that phrase) in a contract or a clause in a contract where there is inequality of bargaining power between the parties although arising out of circumstances not within their control or as a result of situations not of their creation. Other legal systems also permit judicial review of a contractual transaction entered into in similar circumstances.

ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 863 ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]

For example, Section 138(2) of the German Civil Code provides that a transaction is void “when a person” exploits “the distressed situation, inexperience, lack of judgmental ability, or grave weakness of will of another to obtain the grant or promise of pecuniary advantages ... which are obviously disproportionate to the performance given in return”. The position, according to the B French law, is very much the same.” (h). In Brojo Nath Ganguly (supra), it was pointed out what court should do in such a matter thus: “89. Should then our courts not advance with the times? Should they still continue to cling to outmoded concepts and outworn ideologies? Should we not adjust our thinking caps to match the fashion of the day? Should all jurisprudential development pass us by, leaving us floundering in the sloughs of 19th-century theories? Should the strong be permitted to push the weak to the wall? Should they be allowed to ride roughshod over the weak? Should the courts sit back and watch supinely while the strong trample underfoot the rights of the weak? We have a Constitution for our country. Our judges are bound by their oath to “uphold the Constitution and the laws.” The Constitution was enacted to secure to all the citizens of this country social and economic justice. Article 14 of the Constitution guarantees to all persons equality before the law and the equal protection of the laws. The principle deducible from the above discussions on this part of the case is in consonance with right and reason, intended to secure social and economic justice and conforms to the mandate of the great equality clause in Article 14. This principle is that the courts will not enforce and will, when called upon to do so, strike down an unfair and unreasonable contract, or an unfair and unreasonable clause in a contract, entered into between parties who are not equal in bargaining power. It is difficult to give an exhaustive list of all bargains of this type. No court can visualize the different situations which can arise in the affairs of men. One G can only attempt to give some illustrations. For instance, the above principle will apply where the inequality of bargaining power is the result of the great disparity in the economic strength of the contracting parties. It will apply where the inequality is the result of circumstances, whether of the creation of the parties or not. It H

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A will apply to situations in which the weaker party is in a position in which he can obtain goods or services or means of livelihood only upon the terms imposed by the stronger party or go without them. It will also apply where a man has no choice, or rather no meaningful choice, but to give his assent to a contract or to sign on the dotted line in a prescribed or standard form or to accept a B set of rules as part of the contract, however unfair, unreasonable and unconscionable a clause in that contract or form or rules may be. This principle, however, will not apply where the bargaining power of the contracting parties is equal or almost equal. This principle may not apply where both parties are businessmen, and the contract is a commercial transaction. In today’s complex world of giant corporations with their vast infrastructural organizations and with the State through its instrumentalities and agencies entering into almost every branch of industry and commerce, there can be myriad situations which result in unfair and unreasonable bargains between parties possessing wholly disproportionate and unequal bargaining power. These cases can neither be enumerated nor fully illustrated. The court must judge each case on its own facts and circumstances.” (i). The Court in Brojo Nath Ganguly (supra) held that the contract, which affected a large number of persons if they are unconscionable, unfair, and unreasonable, the contract is voidable. The court would not compel each person with whom the party with superior bargaining power had contracted to go to court to adjudge the contract voidable and would result in a multiplicity of litigation. It observed: “91. Is a contract of the type mentioned above to be adjudged voidable or void? If it was induced by undue influence, then under Section 19-A of the Indian Contract Act, it would be voidable. It is, however, rarely that contracts of the types to which the principle formulated by us above applies are induced by undue influence as defined by Section 16(1) of the Indian Contract Act, even though at times they are between parties one of whom holds a real or apparent authority over the other. In the vast majority of cases, however, such contracts are entered into by the weaker party under pressure of circumstances, generally economic, which results in inequality of bargaining power. Such contracts will not fall within the four corners of the definition of “undue influence” H

ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 865 ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]

given in Section 16(1). Further, the majority of such contracts are in a standard or prescribed form or consist of a set of rules. They are not contracts between individuals containing terms meant for those individuals alone. Contracts in prescribed or standard forms or which embody a set of rules as part of the contract are entered into by the party with superior bargaining power with a large number of persons who have far less bargaining power or no bargaining power at all. Such contracts which affect a large number of persons or a group or groups of persons, if they are unconscionable, unfair, and unreasonable, are injurious to the public interest. To say that such a contract is only voidable would be to compel each person with whom the party with superior bargaining power had contracted to go to court to have the contract adjudged voidable. This would only result in multiplicity of litigation, which no court should encourage and would also not be in the public interest. Such a contract or such a clause in a contract ought, therefore, to be adjudged void. While the law of contracts in D England is mostly judge-made, the law of contracts in India is enacted in a statute, namely, the Indian Contract Act, 1872. In order that such a contract should be void, it must fall under one of the relevant sections of the Indian Contract Act. The only relevant provision in the Indian Contract Act, which can apply is Section 23, when it states that “The consideration or object of an agreement is lawful, unless ... the court regards it as ... opposed to public policy.” (j). The Court also considered the “public policy”. The same is not the policy of a particular Government. It connotes some matter which concerns the public good and the public interest. Action has to be subservient to public policy. This Court in the context of Contract Act and Public Policy made the following observations: “92. The Indian Contract Act does not define the expression “public policy” or “opposed to public policy.” From the very nature of things, the expressions “public policy,””opposed to public policy,” G or “contrary to public policy” are incapable of precise definition. Public policy, however, is not the policy of a particular government. It connotes some matter which concerns the public good and the public interest. The concept of what is for the public good or in the public interest or what would be injurious or harmful to the public good or the public interest has varied from time to time. As H

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A new concepts take the place of old, transactions which were once considered against public policy are now being upheld by the courts, and similarly, where there has been a well-recognized head of public policy, the courts have not shirked from extending it to new transactions and changed circumstances and have at times not even flinched from inventing a new head of public policy. There B are two schools of thought— “the narrow view” school and “the broad view” school. According to the former, courts cannot create new heads of public policy, whereas the latter countenances judicial law-making in this area. The adherents of “the narrow view” school would not invalidate a contract on the ground of public C policy unless that particular ground had been well-established by authorities. Hardly ever has the voice of the timorous spoken more clearly and loudly than in these words of Lord Davey in Janson v. Driefontein Consolidated Gold Mines Ltd.: “Public policy is always an unsafe and treacherous ground for legal decision.” That was in the year 1902. Seventy-eight years earlier, Burrough, J., in D Richardson v. Mellish, (1824-34) All ER 258, described public policy as “a very unruly horse, and when once you get astride it you never know where it will carry you.” The Master of the Rolls, Lord Denning, however, was not a man to shy away from unmanageable horses and in words which conjure up before our eyes the picture of the young Alexander the Great taming Bucephalus, he said in Enderby Town Football Club Ltd. v. Football Assn. Ltd. (1971) Ch 591: “With a good man in the saddle, the unruly horse can be kept in control. It can jump over obstacles.” Had the timorous always held the field, not only the doctrine of public policy but even the Common Law or the principles of Equity would never have evolved. Sir William Holdsworth in his “History of English Law,” Volume III, page 55, has said: “In fact, a body of law like the common law, which has grown up gradually with the growth of the nation, necessarily acquires some fixed principles, and if it is to maintain these principles, it must be able, on the ground of public policy or some other like ground, to suppress practices which, under ever new disguises, seek to weaken or negative them.” It is thus clear that the principles governing public policy must be and are capable, on proper occasion, of expansion or H

ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 867 ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]

modification. Practices which were considered perfectly normal at one time have today become obnoxious and oppressive to public conscience. If there is no head of public policy which covers a case, then the court must in consonance with public conscience and in keeping with public good and public interest declare such practice to be opposed to public policy. Above all, in deciding any case which may not be covered by authority, our courts have before them the beacon light of the Preamble to the Constitution. Lacking precedent, the court can always be guided by that light and the principles underlying the Fundamental Rights and the Directive Principles enshrined in our Constitution.

93. The normal rule of Common Law has been that a party who seeks to enforce an agreement which is opposed to public policy will be non-suited. The case of A. Schroeder Music Publishing Co. Ltd. v. Macaulay (1974) 1 WLR 1308, however, establishes that where a contract is vitiated as being contrary to public policy, the party adversely affected by it can sue to have it declared void. The case may be different, where the purpose of the contract is illegal or immoral. In Kedar Nath Motani v. Prahlad Rai, AIR 1960 SC 213, reversing the High Court and restoring the decree passed by the trial court declaring the appellants’ title to the lands in suit and directing the respondents who were the appellants’ benamidars to restore possession, this Court, after discussing the E English and Indian law on the subject, said: (at page 873) : “The correct position in law, in our opinion, is that what one has to see is whether the illegality goes so much to the root of the matter that the plaintiff cannot bring his action without relying upon the illegal transaction into which he had entered. If the illegality be trivial or venial, as stated by Williston and the plaintiff is not required to rest his case upon that illegality, then public policy demands that the defendant should not be allowed to take advantage of the position. A strict view, of course, must be taken of the plaintiff’s conduct, and he should not be allowed to circumvent the illegality by resorting to some subterfuge or by misstating the facts. If, however, the matter is clear and the illegality is not required to be pleaded or proved as part of the cause of action, and the plaintiff recanted before the illegal purpose was achieved, then, unless it be of such a gross nature as to outrage H

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A the conscience of the court, the plea of the defendant should not prevail.” The types of contracts to which the principle formulated by us above applies are not contracts which are tainted with illegality but are contracts which contain terms which are so unfair and unreasonable B that they shock the conscience of the court. They are opposed to public policy and require to be adjudged void.”

51Copy pinpoint51. This Court also considered the law of contract and its interpretation in changing times in Delhi Transport Corporation v. D.T.C. Mazdoor Congress & Ors., (1991) Supp 1 SCC 600 thus: C “279. In paragraph 4 of Chitty on Contracts (25th edn., vol. 1) it is stated that “freedom of contract is a reasonable social ideal only to the extent that equality of bargaining power between contracting parties can be assumed and no injury is done to the economic interest of the community at large.”

D 280. In Anson’s Law of Contract at pages 6 and 7 stated the scope of freedom of contract in the changing circumstances thus: “Today the position is seen in a very different light. Freedom of contract is a reasonable social ideal only to the extent that equality of bargaining power between contracting parties can be assumed, and no injury is done to the economic interests of the community at large. In the more complicated social and industrial conditions of a collectivist society, it has ceased to have much idealistic attraction. It is now realised that economic equality often does not exist in any real sense and that individual interests have to be made to subserve those of the community hence there has been a fundamental change both in our social outlook and in the policy of the legislature towards contract and the law today interferes at numerous points with the freedom of the parties to make what contract they like. The relation between employers and employed, for example, have been regulated by statutes designed to ensure that the employee’s condition of work are safe, that he is properly protected against redundancy, and that he knows his terms of service. The public has been protected against economic pressure by such measures as the Rent Acts, the Supply of Goods (Implied Terms) Act, the Consumer Credit Act, and H

ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 869 ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]

other similar enactments. These legislative provisions will override any contrary terms which the parties may make for themselves. Further, the legislature has intervened in the Restrictive Trade Practices Act, 1956, and the Fair Trading Act, 1973 to promote competition in industry and to safeguard the interests of consumers. This intervention is specially necessary today when most contracts entered by ordinary people are not the result of individual negotiation. It is not possible for a private person to settle the terms of his agreement with a British Railways Board or with a local electricity authority.” The ‘standard form’ contract is the rule. He must either accept the terms of this contract in toto or go without. Since, C however, it is not feasible to deprive oneself of such necessary services, the individual is compelled to accept on those terms. In view of this fact, it is quite clear that freedom of contract is now largely an illusion.”

52Copy pinpoint52. (a). It has been emphasised in D.T.C. (supra) that the period D of contract is to be reasonable and the employee has a right to know the conditions of work and he is properly protected against redundancy. Approving decision in Central Inland Water Transport Corporation Ltd. & Anr. v. Brojo Nath Ganguly & Anr. (1983) 3 SCC 156 Court held thus: E “282. In Brojo Nath case (1986) 3 SCC 156, Madon, J. elaborately considered the development of law relating to unfair or unreasonable terms of the contract or clauses thereof in extenso, and it is unnecessary for me to traverse the same grounds once over. The learned Judge also considered the arbitrary, unfair, and unbridled power on the anvil of distributive justice or justness or fairness of the procedure envisaged therein. The relevant case law in that regard was dealt with in extenso in the light of the development of law in the Supreme Court of United States of America and the House of Lords in England and in the continental countries. To avoid needless burden on the judgment, I do not repeat the same reasoning. I entirely agree with the reasoning, and the conclusions reached therein on all these aspects.” (b). This Court in D.T.C. (supra) with respect to the alteration of Government contracts and the right of the State to impose unconstitutional conditions, observed: H

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A “283. The problem also could be broached from the angle whether the State can impose unconstitutional conditions as part of the contract or statute or rule etc. In (1959-60) 73 Harvard Law Review, in the Note under the caption ‘Unconstitutional Condition’ at pages 1595-96 it is postulated that the State is devoid of power to impose unconstitutional conditions in the contract that B the power to withhold largesse has been asserted by the State in four areas i.e. (1) regulating the right to engage in certain activities; (2) administration of government welfare programme; (3) government employment; and (4) procurement of contracts. It was further adumbrated at pages 1602-03 thus: C “The sovereign’s constitutional authority to choose those with whom it will contract for goods and services is, in effect, a power to withhold the benefits to be derived from economic dealings with the government. As government activity in the economic sphere increases, the contracting power enables the government to control many hitherto unregulated activities of contracting parties through the imposition of conditions. Thus, regarding the government, as a private entrepreneur, threatens to impair constitutional rights. The government, unlike a private individual, is limited in its ability to contract by the Constitution. The federal contracting power is based upon the Constitution’s authorisation of these acts ‘necessary and proper’ to the carrying out of the functions which it allocates to the national government. Unless the objectives sought by terms and conditions in government contracts requiring the surrender of rights are constitutionally authorised, the conditions must fall as ultra vires exercise of power.” Again at page 1603, it is further emphasised thus: “When conditions limit the economic benefits to be derived from dealings with the government to those who forego the exercise of constitutional rights, the exclusion of those retaining their rights from participation in the enjoyment of these benefits may be violative of the prohibition, implicit in the due process clause of Fifth Amendment and explicit in the equal protection clause of the Fourteenth Amendment against unreasonable discrimination in the governmental bestow of advantages. Finally, H disabling those exercising certain rights from participating in the

ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 871 ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]

advantages to be derived from contractual relations with the government may be a form of penalty lacking in due process. To avoid invalidation for any of the above reasons, it must be shown that the conditions imposed are necessary to secure the legitimate objectives of the contract, ensure its effective use, or protect society from the potential harm which may result from the contractual relationship between the government and the individual.”

284. Professor Guido Calabresi of Yale University Law School in his “Retroactivity, Paramount Power and Contractual Changes” (1961-62) 71 Yale Law Journal 1191, stated that the government can make contracts that are necessary and proper for carrying out any of the specific clauses of the Constitution or power to spend for general welfare. The Federal Government has no power, inherent or sovereign, other than those specifically or explicitly granted to it by the Constitution. At page 1197, it is further stated thus: “The government acts according to due process standards for the due process clause is quite up to that task without the rule. Alterations of government contracts are not desirable in a free country even when they do not constitute a ‘taking’ of property or impinge on questions of fundamental fairness of the type comprehended in due process. The government may make changes, but only if war or commerce require them and not on the broader and more ephemeral grounds that the general welfare would be served by the change. Any other rule would allow the government to welch almost at will.” xxx F

286. In Brojo Nath case (supra, after elaborate consideration of the doctrine of “reasonableness or fairness” of the terms and conditions of the contract vis-a-vis the relative bargaining power of the contracting parties this Court laid down that the principles deducible from the discussion made therein is in consonance with G right or reason intended to secure socio-economic justice and conform to mandate of the equality clause in Article 14. The principle laid was that courts will not enforce and will, when called upon to do so, strike down an unfair and unreasonable contract or an unfair and unreasonable clause in a contract, entered into between parties who are not equal in bargaining power …. It will H

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A apply to situations in which the weaker party is in a position in which he can obtain goods or services or means of livelihood only upon the terms imposed by the stronger party or go without them. It will also apply where a man has no choice, or rather no meaningful choice, but to give his assent to a contract or to sign on the dotted line in a prescribed or standard form or to accept a B set of rules as part of the contract, however unfair, unreasonable and unconscionable a clause in that contract or form or rules may be. This principle, however, will not apply where the bargaining power of the contracting parties is equal or almost equal or where both parties are businessmen, and the contract is a commercial transaction.

287. In today’s complex world of giant corporations with their vast infrastructural organisations the State through its instrumentalities and agencies has been entering into almost every branch of industry and commerce and field of service, there can be myriad situations which result in unfair and unreasonable bargains between parties possessing wholly disproportionate and unequal bargaining power. These cases can neither be enumerated nor fully illustrated. The court must judge each case on its own facts and circumstances.” E (emphasis supplied) The Court held that there can be myriad situations which result in unfair and unreasonable bargains, which are the outcome of an unequal bargaining power. Each case has to be seen on its own facts and circumstances. F (c). In D.T.C. (supra), the Court also held that Article 14 sheds light on public policy to curb arbitrariness thus: “294. In Basheshar Nath v. CIT, AIR 1959 SC 149, S.R. Das, C.J. held that Article 14 is founded on a sound public policy recognised and valued in all States, and it admonishes the State G when it disregards the obligations imposed upon the State.

295. In E.P. Royappa v. State of Tamil Nadu, (1974) 4 SCC 3, Bhagwati, J. (as he then was) held that Article 14 is the genus while Article 16 is a specie. Article 16 gives effect to the doctrine of equality in all matters relating to public employment. The basic principle which, therefore, informs both Articles 14 and 16 is

ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 873 ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]

302. Article 14 is the general principle, while Article 311(2) is a special provision applicable to all civil services under the State. Article 311(2) embodies the principles of natural justice, but proviso to clause (2) of Article 311 excludes the operation of principles of natural justice engrafted in Article 311(2) as an exception in the given circumstances enumerated in three clauses of the proviso to Article 311(2) of the Constitution. Article 14 read with Articles 16(1), and 311 are to be harmoniously interpreted that the proviso to Article 311(2) excludes the application of the principles of natural H

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A justice as an exception; and the applicability of Article 311(2) must, therefore, be circumscribed to the civil services and be construed accordingly. In respect of all other employees covered by Article 12 of the Constitution, the dynamic role of Article 14 and other relevant articles like Article 21 must be allowed to have full play without any inhibition, unless the statutory rules themselves, consistent with the mandate of Articles 14, 16, 19 and 21 provide, expressly such an exception.” (emphasis supplied) (d). Arbitrariness in State action whether of the legislature or the executive or of an authority under Articles 12, 14 and 21 comes into play to strike down such an action. The Court in D.T.C. (supra) held thus: “303. Article 19(1)(g) empowers every citizen the right to avocation or profession etc. which includes right to be continued in employment under the State unless the tenure is validly terminated consistent with the scheme enshrined in the fundamental rights of the Constitution. Therefore, if any procedure is provided for deprivation of the right to employment or right to the continued employment till the age of superannuation as is a source to right to livelihood, such a procedure must be just, fair and reasonable. This Court in Fertilizer Corporation Kamgar E Union (Regd.), Sindri v. Union of India (1981) 1 SCC 568, held that Article 19(1)(g) confers a broad and general right which is available to all persons to do works of any particular kind and of their choice. Therefore, whenever there is arbitrariness in State action — whether it be of the legislature or of the executive or of an authority under Article 12, Articles 14 and 21 spring into action and strikes down such an action. The concept of reasonableness and non-arbitrariness pervades the entire constitutional spectrum and is a golden thread which runs through the whole fabric of the Constitution. Therefore, the provision of the statute, the regulation or the rule which empowers an employer to terminate the services of an employee whose service is of an indefinite period till he attains the age of superannuation, by serving a notice or pay in lieu thereof must be conformable to the mandates of Articles 14, 19(1)(g) and 21 of the Constitution. Otherwise, per se, it would be void. In Moti Ram Deka case, AIR 1964 SC 600, Gajendragadkar, H J. (as he then was) after invalidating the Rules 149(3) and 148(3)

ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 875 ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]

under Article 311(2) which are in pari materia with Regulation A 9(b) of the Regulations also considered their validity in the light of Article 14 and held thus: (SCR p. 731) “Therefore, we are satisfied that the challenge to the validity of the impugned Rules on the ground that they contravene Article 14 must also succeed.” B This was on the test of reasonable classification as the principle then was applied. Subba Rao, J. (as he then was) in a separate but concurring judgment, apart from invalidating the rule under Article 311(2) also held that the rule infringed Article 14 as well, though there is no elaborate discussion in that regard. But, C Das Gupta, J. considered elaborately on this aspect and held: (SCR p. 770) “Applying the principle laid down in the above case to the present Rule, I find on the scrutiny of the Rule that it does not lay down any principle or policy for guiding the exercise of discretion by the authority who will terminate the service in the matter of selection or classification. Arbitrary and uncontrolled power is left in the authority to select at its will any person against whom action will be taken. The rule thus enables the authority concerned to discriminate between two railway servants to both of whom Rule 148(3) equally applied by taking action in one case and not taking it in the other. In the absence of any guiding principle in the exercise of the discretion by the authority, the Rule has, therefore, to be struck down as contravening the requirements of Article 14 of the Constitution.”

308. In Ramana case (1979) 3 SCC 489, it has been held that: (SCC p. 504, para 10) “It is indeed unthinkable that in a democracy governed by the rule of law, the executive government or any of its officers should possess arbitrary power over the interests of the individual.” G The procedure adopted should match with what justice demands. History shows that it is always subtle and insidious encroachments made ostensibly for a good cause that imperceptibly but surely erode the foundations of liberty.” (emphasis supplied) H

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A (e). An employer cannot act in a manner that is in the negation of just, fair, and reasonable procedure. The Court held: “329. I am, therefore, inclined to hold that the courts, though, have no power to amend the law by process of interpretation but do have power to mend it so as to be in conformity with the intendment of the legislature. Doctrine of reading down is one of the principles of interpretation of statute in that process. But when the offending language used by the legislature is clear, precise, and unambiguous, violating the relevant provisions in the Constitution, resort cannot be had to the doctrine of reading down to blow life into the void law to save it from unconstitutionality or to confer jurisdiction on the legislature. Similarly, it cannot be taken aid of to emasculate the precise, explicit, clear and unambiguous language to confer arbitrary, unbridled and uncanalised power on an employer which is a negation to just, fair and reasonable procedure envisaged under Articles 14 and 21 of the Constitution D and to direct the authorities to record reasons, (sic) unknown or unintended procedure, in the manner argued by the learned counsel for the appellants.” (emphasis supplied) (f). In D.T.C. (supra) this Court also relied upon S.G. Jaisinghani E v. Union of India, AIR 1967 SC 1427 : “331. x x x “In this context it is important to emphasise that the absence of arbitrary power is the first essential of the rule of law upon which our whole constitutional system is based. In a system governed by rule of law, discretion, when conferred upon executive authorities, must be confined within defined limits. The rule of law from this point of view means that decisions should be made by the application of known principles and rules and, in general, such decisions should be predictable, and the citizen should know where he is. If a decision is taken without any principle or without any rule, it is unpredictable, and such a decision is the antithesis of a decision taken in accordance with the rule of law. (See Dicey: Law of the Constitution, 10th edn., Introduction cx.) ‘Law has reached its finest moments,’ stated Douglas, J. in United States v. Wunderlich 342 US 98, ‘when it has freed man from the unlimited discretion of some ruler …. Where discretion H

ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 877 ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]

is absolute, man has always suffered.’ It is in this sense that the A rule of law may be said to be the sworn enemy of caprice. Discretion, as Lord Mansfield stated it in classic terms in the case of John Wilkes (1770) 4 Burr 2528, ‘means sound discretion guided by law. It must be governed by rule, not by humour: it must not be arbitrary, vague and fanciful’”. B (emphasis supplied) (g). The Court emphasised that the decision has to be predictable and it cannot be uncertain. The decision has to be taken by application of known principles and rules. The exercise of power cannot be whimsical or capricious. This Court in D.T.C. (supra) held: C “332. In an appropriate case where there is no sufficient evidence available to inflict by way of disciplinary measure, penalty of dismissal or removal from service and to meet such a situation, it is not as if that the authority is lacking any power to make rules or regulations to give a notice of opportunity with the grounds or the material on records on which it proposed to take action, consider the objections and record reasons on the basis of which it had taken action and communicate the same. However, scanty the material may be, it must form foundation. This minimal procedure should be made part of the procedure lest the exercise of the power is capable of abuse for good as well as for whimsical or capricious purposes for reasons best known to the authority and not germane for the purpose for which the power was conferred. The action based on recording reasoning without communication would always be viewed with suspicion. Therefore, I hold that conferment of power with wide discretion without any guidelines, without any just, fair or reasonable procedure is constitutionally anathema to Articles 14, 16(1), 19(1)(g) and 21 of the Constitution. Doctrine of reading down cannot be extended to such a situation.” (emphasis supplied)

53Copy pinpoint53. On the basis of aforesaid principles, it is apparent that once the Central Board of Directors accepted the memorandum for making payment of pension, in case it was not accepting the proposal in the memorandum, it ought to have said clearly that it was not ready to accept the proposals of the Government and the IBA and rejects the same. Once it approved the proposals referred to in the memorandum, which H

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A were on the basis of IBA’s letter and Government of India’s decision it was bound to implement it in true letter and spirit. By accepting the same, binding obligation was created upon the SBI to make payment of pension on completion of 15 years of service. It cannot invalidate its own decision by relying on fact it failed to amend the rule, whereas other Banks did it later on with retrospective effect. They cannot invalidate otherwise valid decision by virtue of exclusive superior power to amend or not to amend the rule and act unfairly and make the entire contract unreasonable based on misrepresentation. It was open to the Board of Directors to reject the proposal. Once it accepted the proposal to make payment of pension on completion of 15 years of service as proposed in the memorandum, though the scheme is tried to be interpreted by the SBI that pension was to be admissible as provided in the rule that refers to proportionate pension as noted by this Court in O.P. Swarnakar & Ors., (supra), and what was decided by Government of India/IBA, was not taken away rather adopted by the Central Board of Directors. The scheme of contractual nature has to be read in the context and in the backdrop of facts and what has been resolved by the Board of Directors. There is no ambiguity with respect to the admissibility of pension when the memorandum and the scheme are read together. In case of ambiguity and even if two interpretations are possible in the backdrop of facts of the case, one in favour of the employees has to be adopted and so-called clarification dated 11.¹.2000 even if considered in the manner so as to deny the benefit of pension, has to be held to be unenforceable, illegal and contrary to law.

54Copy pinpoint54. It is apparent from the eligibility clause of the VRS scheme that eligibility is provided for the employees having 15 years of pensionable service and they will be entitled for benefits as provided in the scheme. The eligibility clause, when read with clauses providing the benefit, i.e., clauses 5 and 6 of the scheme, leaves no room for any doubt and makes it clear that employees with 15 years of service were treated as eligible to claim the benefit of the scheme floated by SBI. It was not the provision in the VRS scheme that incumbents having completed 20 years of service would be entitled for pensionary benefits. The scheme was carved out specially for attracting the employees by providing pension and other benefits to eligible persons like ex gratia, gratuity, pension and leave encashment. Deprivation of pension would make them ineligible for the benefits and would run repugnant to the eligibility clause. H

ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 879 ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]

55Copy pinpoint55. The submission raised on behalf of the SBI that the draft A scheme nowhere stipulated that 15 years’ service would be the eligibility or that on completion of 15 years’ service, the incumbent would be eligible for pension, is factually incorrect. It is apparent from the material circumstances, documents, and correspondence that the decision was taken at all levels including the one by the Central Board of Directors of B SBI, that the benefit of pension was to be given to the employees on completion of 15 years of service. In that perspective, vagueness of scheme of SBI, if any, can be of no advantage as it is clear beyond the pale of doubt that pension was heart and soul of the scheme with ex gratia on completion of 15 years of service. It is due to the reason that the benefit was to be accorded to the incumbents having completed 15 C years of service, Regulation 28 as applicable to other nationalised banks was proposed to be modified as reflected in the letter of IBA dated 11.12.2000 and Government of India letter dated 5.9.2000. Later on, the regulation was amended in 2002 after the scheme had already been implemented in right earnest. There was not even an iota of doubt that D VRS was to give benefits to all eligible employees having completed 15 years of service. It was apparent from the letter dated 29.12.2000 of SBI that the guidelines of IBA were approved by the Central Board of Directors in its meeting dated 27.12.2000. Para 2 of the letter dated 29.12.2000 of SBI Deputy Managing Director-cum-SDO is extracted hereunder: E “2. Accordingly, the Central Board of Directors, in its meeting held on 27.12.2000, has accorded approval for adopting and implementing the Voluntary Retirement Scheme for the employees of the Bank, namely “SBI Voluntary Retirement Scheme (SBIVRS).” The Scheme “SBIVRS” has been drawn up, keeping F in view the guidelines issued by IBA. A copy of the Scheme is placed at Annexure ‘B’.” (emphasis supplied)

56Copy pinpoint56. As noted in O.P. Swarnakar & Ors., (supra), the case of bank itself was that it was a contractual scheme. The expression G “pension” as per rules was only for the purpose of working out the proportionate pension. It was clearly decided to open the scheme to employees who have put in 15 years of service. It was not provided in the scheme that the incumbent was required to render a pensionable service of 20 years as per the rules in order to acquire eligibility for the H

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A pension. The submission made on behalf of SBI is too tenuous to be accepted. It was observed in para 89 of O.P. Swarnakar & Ors., (supra) quoted above that the employee must have proceeded on the basis of 15 years of service then they were entitled to pensionary benefits. The Court further observed in O.P. Swarnakar & Ors., (supra) B that the scheme is enforceable thus: “92. However, the case of the State Bank of India stands slightly on a different footing. Firstly, the State Bank of India had not amended the Scheme. It, as noticed hereinbefore, even permitted withdrawal of the applications after (sic by) 15th February. The C Scheme floated by the State Bank of India contained a clause (clause 7) laying down the mode and manner in which the application for voluntary retirement shall be considered. The relevant clause, as referred to hereinbefore, creates an enforceable right. In the event the State Bank failed to adhere to its preferred policy, the same could have been specifically enforced by a court D of law. The same would, therefore, amount to some consideration.”

57Copy pinpoint57. While construing a contract, the language and surrounding circumstances of the overall scheme, memorandum and letters are to be read conjointly to find out whether any departure made by the Board of Directors in its Resolution dated 27.12.2000 is of pivotal significance. In E this case, the decision was taken by it of approval of the IBA scheme as proposed. Its binding effect cannot be changed on the basis what parties choose to say afterward, nor they can be permitted to wriggle out. The contract is required to be read as a whole. It is apparent on a bare reading that optees will be eligible for proportionate pension under the F Pension Regulations of the bank and therefore, the bank bears the risk of lack of clarity, if any.

58Copy pinpoint58. In Bank of India & Anr. v. K. Mohandas & Ors., (2009) 5 SCC 313 wherein several other banks were also parties, the question arose as to the nature of VRS, 2000. The Court noted the objectives, the amendment made in Regulation 28 in 2002, providing for 15 years of service. The scheme was open in November-December, 2000 and in Union Bank of India in January, 2001. The employees claimed that those who completed 20 years of service, were entitled to the benefit of provisions contained in Regulation 29(5) of Employees’ Pension Regulations, 1995 applicable to the said banks. They claimed having completed the qualifying service of 20 years under Regulation 29, were

ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 881 ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]

entitled for 5 years’ increase in the service tenure subject to the maximum of 33 years which was not given to them on the ground that the benefit of VRS was available to incumbents having completed 15 years of service as provided in amended Regulation 28, and Regulation 29 was not applicable. This Court held that the benefit of VRS was available to the employees having completed 15 years of service, but the additional benefit which was available on completion of 20 years of service was also admissible as provided in Regulation 29(5).

59Copy pinpoint59. While considering the aforesaid similar scheme of VRS, this Court observed with respect to the construction of the contract on the basis of the import of the words. The intention of the parties must be ascertained from the language they have used and considered in the light of surrounding circumstances, and the meaning cannot be changed by a course of conduct adopted by the parties in acting under it. This Court in K. Mohandas (supra) held thus: “28.The true construction of a contract must depend upon the import of the words used and not upon what the parties choose to say afterwards. Nor does subsequent conduct of the parties in the performance of the contract affect the true effect of the clear and unambiguous words used in the contract. The intention of the parties must be ascertained from the language they have used, considered in the light of the surrounding circumstances and the object of the contract. The nature and purpose of the contract is an important guide in ascertaining the intention of the parties.

29. In Ottoman Bank of Nicosia v. Ohanes Chakarian, Lord Wright made these weighty observations: (AIR p. 29) “… that if the contract is clear and unambiguous, its true effect cannot be changed merely by the course of conduct adopted by the parties in acting under it.”

30. In Ganga Saran v. Firm Ram Charan Ram Gopal AIR 1952 SC 9, a four-Judge Bench of this Court stated: (AIR p. 11, para 6) G “6. … Since the true construction of an agreement must depend upon the import of the words used and not upon what the parties choose to say afterwards, it is unnecessary to refer to what the parties have said about it.” H

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A 31. It is also a well-recognised principle of construction of a contract that it must be read as a whole in order to ascertain the true meaning of its several clauses and the words of each clause should be interpreted so as to bring them into harmony with the other provisions if that interpretation does no violence to the meaning of which they are naturally susceptible. (North Eastern B Railway Co. v. Lord Hastings, 1900 AC 260)”

60Copy pinpoint60. With respect to lack of clarity in the scheme, this Court in K. Mohandas (supra) relied on maxim verba chartarum fortius accipiuntur contra proferentem to hold that banks who were responsible for formulation of the terms in the contractual Scheme, bear the risk of lack of clarity. Thus, the benefit has to be given to the employees by making interpretation against the banks. The Court held : “32. The fundamental position is that it is the banks who were responsible for formulation of the terms in the contractual Scheme that the optees of voluntary retirement under that Scheme will be eligible to pension under the Pension Regulations, 1995, and, therefore, they bear the risk of lack of clarity, if any. It is a well- known principle of construction of a contract that if the terms applied by one party are unclear, an interpretation against that party is preferred (verba chartarum fortius accipiuntur contra proferentem).

33. What was, in respect of pension, the intention of the banks at the time of bringing out VRS 2000? Was it not made expressly clear therein that the employees seeking voluntary retirement will be eligible for pension as per the Pension Regulations? If the intention was not to give pension as provided in Regulation 29 and particularly sub-regulation (5) thereof, they could have said so in the Scheme itself. After all, much thought had gone into the formulation of VRS 2000, and it came to be framed after great deliberations. The only provision that could have been in mind while providing for pension as per the Pension Regulations was G Regulation 29. Obviously, the employees, too, had the benefit of Regulation 29(5) in mind when they offered for voluntary retirement as admittedly Regulation 28, as was existing at that time, was not applicable at all. None of Regulations 30 to 34 was attracted.” H (emphasis supplied)

ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 883 ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]

61Copy pinpoint61. In K. Mohandas (supra) the Court considered the argument A that Regulation 28 would be applicable only for providing 15 years of eligibility as provided by way of amendment of Regulation of 1995, and held that as the banks are “State” within the meaning of Article 12, it would be an arbitrary action on their part to deny the benefit of section 29(5), and there has to be harmonious construction to the scheme and B Pension Regulations, thus: “35. We are afraid; it would be unreasonable if amended Regulation 28 is made applicable, which had not seen the light of the day and which was not the intention of the banks when the Scheme was framed. The banks in the present batch of appeals are public sector banks and are “State” within the meaning of C Article 12 of the Constitution and their action even in contractual matters has to be reasonable, lest, as observed in O.P. Swarnakar (2003) 2 SCC 721, it must attract the wrath of Article 14 of the Constitution.

36. Any interpretation of the terms of VRS 2000, although D contractual in nature, must meet the test of fairness. It has to be construed in a manner that avoids arbitrariness and unreasonableness on the part of the public sector banks who brought out VRS 2000 with an objective of rightsizing their manpower. The banks decided to shed surplus manpower. By E formulation of the special scheme (VRS 2000), the banks intended to achieve their objective of rationalising their force as they were overstaffed. The special Scheme was, thus, oriented to lure the employees to go in for voluntary retirement. In this background, the consideration that was to pass between the parties assumes significance and a harmonious construction to the Scheme, and F the Pension Regulations, therefore, has to be given.

37. The amendment to Regulation 28 can, at best, be said to have been intended to cover the employees with 15 years of service or more but less than 20 years of service. This intention is reflected from the communication dated 5-9-2000 sent by the Government G of India, Ministry of Finance, Department of Economic Affairs (Banking Division) to the Personnel Advisor, Indian Banks’ Association.” (emphasis supplied) H

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A It opined that the amendment to Regulation 28 of 1995 Regulation intended to cover 15 years of service, i.e., employees with 15 years of service who have not completed 20 years of service. A similar action to amend the Rule was required to be taken by the SBI, but it failed to take it after having floated a similar scheme. It kept it uncertain what would be the position of the rule as on the appointed date, i.e., 31.³.2001. Be B that as it may. But it was crystal clear that the incumbent with 15 years of service was eligible for the benefit as provided in the scheme itself. The benefit clause has to be read with the eligibility criteria. Once VRS was formulated and adopted by the SBI in toto, it constituted a complete contractual package in itself.

62Copy pinpoint62. As urged on behalf of SBI if section 23 of the Contract Act is applied, then how it is helpful to the bank, is not understandable. In case it is held that the very scheme was opposed to the law/rules, the entire scheme would fall down. Once it adopted the scheme, invited applications and the employees acted upon it and retired on the basis of the scheme, D they cannot be left in lurch. In case its submission is accepted, the Scheme becomes violative of Section 23 of Contact Act, the bank would have to suffer the consequences of striking down of the very scheme and would be required to reinstate the employees and to pay them the salary and other benefits. However, SBI accepted the scheme, it was incumbent upon it to bring the rules in consonance with the similar VRS E scheme as was done by other banks. The SBI accepted the scheme on 27.12.2000 without any ifs and buts. Thus, the anomaly was the outcome of the bank’s inaction to propose and make amendment of rules. In such a scenario, the action of SBI is violative of Articles 14, 16 and 21 of the Constitution. The situation created by itself is not going to benefit the F bank to lend support to arbitrary action. The bank was bound to extend the benefits by amending the rules, if necessary, to salvage the situation for itself. Breach of law has been committed by the SBI itself, its action is arbitrary and it cannot be permitted to take advantage of its own wrong.

63Copy pinpoint63. The pension cannot be dealt with arbitrarily and cannot be denied in an unfair manner. The concept of pension was considered in D.S. Nakara & Ors. v. Union of India, (1983) 1 SCC 305. The right to a pension can be enforced through the court, it observed : “20. The antequated notion of pension being a bounty, a gratuitous payment depending upon the sweet will or grace of the employer

ASSISTANT GENERAL MANAGER, STATE BANK OF INDIA & 885 ORS. v. RADHEY SHYAM PANDEY [ARUN MISHRA, J.]

not claimable as a right and, therefore, no right to pension can be enforced through Court has been swept under the carpet by the decision of the Constitution Bench in Deokinandan Prasad v. State of Bihar (1971) 2 SCC 330 wherein this Court authoritatively ruled that pension is a right and the payment of it does not depend upon the discretion of the Government but is governed by the rules and a government servant coming within those rules is entitled to claim pension. It was further held that the grant of pension does not depend upon anyone’s discretion. It is only for the purpose of quantifying the amount having regard to service and other allied matters that it may be necessary for the authority to pass an order to that effect but the right to receive pension flows to the officer not because of any such order but by virtue of the rules. This view was reaffirmed in State of Punjab v. Iqbal Singh, (1976) 2 SCC 1.

22. In the course of transformation of society from feudal to welfare and as socialistic thinking acquired respectability. State D obligation to provide security in old age, an escape from undeserved want was recognised and as a first step pension was treated not only as a reward for past service but with a view to helping the employee to avoid destitution in old age. The quid pro quo was that when the employee was physically and mentally alert, he rendered unto master the best, expecting him to look after him in E the fall of life. A retirement system, therefore, exists solely for the purpose of providing benefits. In most of the plans of retirement benefits, everyone who qualifies for normal retirement receives the same amount (see Retirement Systems for Public Employees by Bleakney, p. 33).” F This Court observed that the principal aim of the socialist State as envisaged in the Preamble is to eliminate inequality. The basic framework of socialism is to provide security in the fall of life to the working people and especially provides security from the cradle to the grave when employees have rendered service in heydays of life, they cannot be G destituted in old age, by taking action in an arbitrary manner and for omission to complete obligation assured one. Though there cannot be estoppel against the law but when a bank had the power to amend it, it cannot take shelter of its own inaction and SBI ought to have followed the pursuit of other banks and was required to act in a similar fair manner having accepted the scheme. H

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64Copy pinpoint64. Resultantly, we are of the opinion that the employees who completed 15 years of service or more as on cut-off date were entitled to proportionate pension under SBI VRS to be computed as per SBI Pension Fund Rules. Let the benefits be extended to all such similar employees retired under VRS on completion of 15 years of service without requiring them to rush to the court. However, considering the B facts and circumstances, it would not be appropriate to burden the bank with interest. Let order be complied with and arrears be paid within three months, failing which amount to carry interest at the rate of 6 per cent per annum from the date of this order. The appeals are accordingly disposed of. No costs. C

Ankit Gyan Appeals disposed of.