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CASE NO.: Appeal (civil)  971 of 2007

PETITIONER: Ramesh Chandra Sharma

RESPONDENT: Punjab National Bank & anr

DATE OF JUDGMENT: 18/05/2007

BENCH: S. B. Sinha & Markandey Katju

JUDGMENT: J U D G M E N T

WITH CIVIL APPEAL NO. 975 OF 2007

S. B. SINHA, J.

1.      These two appeals arising out of the common judgment and order  were taken up together for hearing and are being disposed of by this  common judgment.

2.      Before embarking upon the question involved in these matters, we  may notice the fact of the matter.     

3.      Punjab National Bank (hereinafter referred to as the ’Bank’) is a  nationalized bank constituted under the Banking Companies (Acquisition  and Transfer of Undertakings) Act, 1970 (1970 Act).  While Ramesh  Chandra Sharma (hereinafter referred to as the ’appellant’) was working in  the capacity of a Manager in the Bank’s Latouche Road, Kanpur Branch, a  disciplinary proceeding was drawn against him.   

       The following charges were levelled against him:

"ARTICLE -I

He acted negligently as also deliberately with  improper motive while granting credit facility to various  borrowers to the detriment of the interest of the Bank and  thereby exposed huge funds of the Bank to jeopardy.   

ARTICLE-II

He did not discharge his duties with utmost  integrity by unauthorizedly associating outsiders through  which he affected disbursement of the loan to various  borrowers overlooking the fact that entire proceeds of the  loan has not been received by the borrowers.  

ARTICLE-III

He did not ensure to keep limitation alive in  borrowal accounts, thereby exposing Bank’s funds to  jeopardy, as also incurred expenses beyond his vested  financial powers."      

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Charge No. I was sub-divided into 24 sub-charges and Charge No. III was  sub-divided into two sub-charges.  All these charges were proved.  A  disciplinary proceeding was initiated in relation thereto.

4.      The Enquiry Officer submitted a report to the Disciplinary Authority.   By an order dated 13.11.1997 the Disciplinary Authority while holding the  appellant guilty of the proved charges decided to impose upon him a major  penalty of dismissal from Bank’s service which shall ordinarily be a  disqualification for future employment in terms of clause 4(j) of Punjab  National Bank Officer Employees (Discipline & Appeals) Regulations,  1977.  It was, however, stated that the terminal dues of the respondent would  be settled.

       An appeal preferred thereagainst by the appellant was dismissed by  the Appellate Authority by an order dated 21.10.1998.   

5.      Aggrieved by and dissatisfied therewith the appellant filed a writ  petition before the High Court of Judicature of Allahabad.           One of the contentions in the writ petition was that the appellant  having allowed to superannuate on his reaching the age of superannuation on  31.1.1997, continuation of the disciplinary proceedings was bad in law.  The  High Court negatived the said contention.  In its judgment, reliance, inter  alia, was placed on a decision of this Court in Disciplinary Authority-cum- Regional Manager and others vs. Nikunja Bihari Patnaik [1996 (9) SCC  69].  It was held thus:

"We must mention that Shri V.A. Mohta, the  learned counsel for the respondent, stated fairly  before us that it is not possible for him to sustain  the reasoning and approach of the High Court in  this case.  His only submission was that having  regard to the age of the respondent (37 years) and  the facts and circumstances of the case, this Court  may substitute the punishment awarded to the  respondent by a lesser punishment.   The learned  counsel suggested that any punishment other than  dismissal may be imposed by this Court.   We  considered this request with the case it deserves,  but we regret that we are unable to accede to it.   The learned counsel for the Bank, Shri V.R.  Reddy, Additional Solicitor General, also stated,  on instructions of the Bank, that it is not possible  for the Bank to accommodate the respondent in its  service in view of his conduct."

6.      Before the High Court, it appears, a copy of a Circular dated 5.3.1999  was placed for the purpose of raising a contention that the order of the  Appellate Authority would be relevant to determine the controversy even if  the same was issued subsequent to the order imposing punishment.  The  High Court observed thus :             

"In view of the above, it may be desirable  that the matter be remanded to the respondent  authorities to pass an appropriate order setting  aside the impugned orders.   However, considering  the fact that the matter is pending since long and in  order to bring the litigation to an end and  considering the gravity of the charges and financial  loss suffered by the Bank, we substitute the order  of dismissal by the order of withholding all retiral  benefits as has been explained in the counter  affidavit.  However, no recovery of the loss to the  Bank to the tune of Rs. 1, 14, 87,164.76 shall be

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made from him."  

       Both the parties, being aggrieved by the impugned judgment of the  High Court, are before us.

7.      The questions which, in the facts and circumstances, arise for our  consideration are \026 (i) whether, in terms  of the rules governing the terms  and conditions of services of the employees of the Bank, it was permissible  for it to continue the disciplinary proceedings despite the fact that the  respondent attained the age of superannuation; and (ii) whether the High  Court could have, in the facts and circumstances of the case, substituted the  punishment imposed by the Appointing Authority and the Appellate  Authority by its own.

8.      Indisputably, Parliament enacted the Banking Companies (Acquisition  and Transfer of Undertaking) Act 1970.  Sub-section (2) of Section 19  thereof empowers the Board of Directors of the Bank to make regulations.   In exercise of the said power read with Section 12 of the Act, the Board of  Directors of the Appellant - Bank in consultation with the Reserve Bank of  India and with the previous sanction of the Central Government made  regulations known as the ’Punjab National Bank Employees (Pension)  Regulations, 1995’.

9.      Submissions of Mr. Pramit Saxena, learned counsel appearing on  behalf of the appellant, are that:

(i)     the appellant having been permitted to retire from service,  continuation of disciplinary proceedings and subsequent  imposition of major punishment i.e. dismissal from service, is bad  in law; and  (ii)    in any event, as the Disciplinary Authority clearly directed  payment of the terminal dues and the said order having been  upheld by the Appellate Authority, the High Court committed a  manifest error in passing the impugned judgment.    

10.     Submissions of Mr. Dhruv Mehta, learned counsel appearing on  behalf of the Bank, on the other hand, are : (i)     that Regulation 20 (3)(iii) of the 1977 Regulations permits  continuation of a disciplinary proceeding in terms whereof a legal  fiction has been created, and hence the disciplinary authority had  the requisite jurisdiction to impose an order of dismissal from  service;  and  (ii)    that the appellant is not entitled to the retirement benefits in terms  of Regulation 22 of the Pension Regulation which provides for  forfeiture of the entire past service of an employee and subsequent  disqualification for obtaining pensionary benefits, inter alia,  dismissal or removal from service.   (iii)   When a punishment of dismissal from service is imposed under a  provision or statute, the delinquent officer loses his or her  pensionary benefits as the same stands forfeited, and does not  suffer from the doctrine of double jeopardy, as has been held in  Union of India and others vs. Subedar Ram Narain and others  [ 1998 (8) SCC 52] .   11.     The question as to whether a departmental proceeding can continue  despite the delinquent officer’s reaching the age of superannuation would  depend upon the applicability of the extant rules.   It may be true that the  question of imposition of dismissal of the delinquent officer from service  when he has already reached the age of superannuation would not ordinarily  arise.  However, as the consequences of such an order is provided for in the  service rule, in our opinion, it would not be correct to contend that  imposition of such a punishment would be wholly impermissible in law.  

       Nikunja Bihari Patnaik (supra) is an authority for the proposition that  an officer of the bank cannot be allowed to flout the existing rules.  In

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Nikunja Bihari Patnaik (supra) this Court held:  

"In the case of a Bank - for that matter, in the case of any  otherorganization -every officer/employee       is supposed   to act within   the  limits  of his  authority. If  each  officer/ employee  is  allowed  to  act  beyond his  authority, the discipline of  the  organisation/bank  will  disappear; the  functioning  of   the  Bank   would   become   chaotic   and unmanageable. Each  officer of the Bank cannot be  allowed to carve out his own little empire wherein he  dispenses favours and largesse. No organization, more  particularly, a Bank can function properly and effectively   if  its  officers and employees  do not  observe the   prescribed       norms  and discipline. Such indiscipline  cannot  be  condoned  on         the specious ground that it was  not actuated by ulterior motives or by extraneous  considerations.  The very  act  of  acting beyond authority   - that too a course of conduct spread over a  sufficiently  long    period   and involving innumerable instances -  is   by  itself  a misconduct.  Such  acts,  if permitted, may  bring in profit in some cases but they  may also lead  to  huge losses. Such adventures are not  given to the  employees  of Banks  which deal  with public   funds. If  what we hear about the reasons for the  collapse of  Barings Bank is  true, it  is attributable to the acts of one  of its employees, Nick Leeson, a minor  officer  stationed   at Singapore, who was allowed  by his  superiors to  act   far beyond his  authority. As mentioned hereinbefore, the  very discipline of  an organization and more particularly,  a Bank is dependent upon each of its employees and  officers acting and operating within their allotted sphere.   Acting beyond one’s authority is by itself a breach of  discipline and a breach of Regulation 3. It constitutes  misconduct within the meaning of Regulation 24. No  further proof of loss is really necessary though as a   matter  of fact, in this case there are findings that several  advances and over-drawals allowed by the        respondent  beyond his authority have become sticky and  irrecoverable. Just because, similar acts have fetched  some profit - huge  profit, as the High Court characterizes  it - they  are  no  less  blameworthy.  It is wrong to  characterize them as errors of judgment."

12.     In this case also, the punishment of dismissal from service was  upheld.   

       The question, we may notice, came up for consideration before this  Court in State of U.P. vs. Bhram Datt Sharma [AIR 1987 SC 943], wherein  this Court while interpreting Regulation 470 of the Civil Services  Regulations in State of U.P. vs. Harihar Bhole Nath \026 2006 (11) SCALE  322, held as under:  

"A plain reading of the regulation indicates  that full pension is not awarded as a matter of  course to a Govt. servant on his retirement instead,  it is awarded to him if his satisfactory service is  approved.  If the service of a Govt. servant has not  been thoroughly satisfactory the authority  competent to sanction the pension is empowered to  make such reduction in the amount of pension as it  may think proper.   Proviso to the regulation lays  down that no order regarding reduction in the  amount of pension shall be made without the  approval of the appointing authority.  Though the

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Regulations do not expressly provide for affording  opportunity to the Govt. servant before order for  the reduction in the pension is issued, but the  principles of natural justice ordain that opportunity  of hearing must be afforded to the Govt. servant  before any order is passed.   Article 311(2) is not  attracted, nonetheless the Govt. servant is entitled  to opportunity of hearing as the order of reduction  in pension affects his right to receive full pension.   It is no more in dispute that pension is not bounty;  instead it is a right to property earned by the Govt.  servant on his rendering satisfactory service to the  State."  

The question, thus, as to whether continuation of a disciplinary proceeding  would be permissible or the employer will have to take recourse only to the  pension rules, in our opinion, would depend upon the terms and conditions  of the services of the employee and the power of the disciplinary authority  conferred by reason of a statute or statutory rules.

       We have noticed hereinbefore that the Bank have made Regulations  which are statutory in nature.  Regulation 20(3)(iii) of the said Regulations  reads thus:

"20 (3)(iii).  The officer against whom  disciplinary proceedings have been initiated will  cease to be in service on the date of  superannuation but the disciplinary proceedings  will continue as if he was in service until the  proceedings are concluded and final order is  passed in respect thereof.  The concerned officer  will not receive any pay and /or allowance after the  date of superannuation.  He will also not be  entitled for the payment of retirement benefits till  the proceedings are completed and final order is  passed thereon except his own contribution to  CPF."

The said Regulation clearly envisages continuation of a disciplinary  proceeding despite the officer ceasing to be in service on the date of  superannuation.  For the said purpose a legal fiction has been created  providing that the delinquent officer would be deemed to be in service until  the proceedings are concluded and final order is passed thereon.  The said  Regulation being statutory in nature should be given full effect.     

13.     The effect of a legal fiction is well-known.  When a legal fiction is  created under a statute, it must be given its full effect, as has been observed  in East End Dwellings Co. Ltd. vs. Finsbury Borough Council [1951 (2) All  E.R. 587] as under:

"If you are bidden to treat an imaginary state  of affairs as real, you must surely, unless  prohibited from doing so, also imagine as real the  consequences and incidents which, if the putative  state of affairs had in fact existed, must inevitably  have from or accompanied it.  One of these in this  case is emancipation from the 1939 level of rents.   The statute says that you must imagine a certain  state of affairs; it does not say that having done so,  you must cause or permit your imagination to  boggle when it comes to the inevitable corollaries  of that state of affairs."      

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14.     The issue is, thus, no longer res integra, which as would be evident  from the ratio laid down by this Court from time to time.  

       In State Bank of India vs. C.B. Dhall  [1998(2) SCC 544], it is held as  under:

"Under Rule 20-B disciplinary proceedings  if initiated against an employee before he retires  from service could be continued and concluded  even after his retirement and for the purpose of  conclusion of the disciplinary proceedings, the  employee is deemed to have continued in service  but for no other purpose."       

       In Harihar Bhole Nath (supra) upon considering Regulations 351-A  and 470 of the Civil Services Regulations, this Court following Bhram Datt  Sharma (supra) opined as under:

"The right to withhold or withdraw the  pension may arise in different situations.  Two  different contingencies are clearly envisaged under  the Regulations, viz., if the pensioner is found  guilty of misconduct either in departmental  proceedings or in judicial proceedings.  Although,  prima facie, the proviso appended to Regulation  351-A does not envisage continuation of the  proceedings, the same must be held to be existing  on a plain reading thereof.  Regulations 351-A and  470 provide for a composite scheme; by  emphasizing that payment of pension is not  automatic and it can be withheld if the conditions  laid down therein are satisfied.  Undoubtedly,  before an order of withholding the amount of  pension or a part thereof it is passed, the  procedures laid down under the statute are required  to be complied with.  The procedural safeguards  must be kept in mind.  Limitations of application  of the Rules again have to be borne in mind.

But the said Rules read with the Proviso and  the Explanation appended thereto construed in  their entirety clearly postulate that the proceeding  initiated before the delinquent officer reached his  age of superannuation would be valid."

       This Court  therein distinguished this decision in State of U.P.& Anr.  vs. Shri Krishna Pandey [AIR 1996 SC 1656], Bhagirathi Jena vs. Board of  Directors O.S.F.C & Ors.[1999(3) SCC 666] in the following terms:   

"The High Court has placed strong reliance  on State of U.P. & Anr. vs. Shri Krishna Pandey  [AIR 1996 SC 1656], wherein the departmental  enquiry was initiated after the delinquent officer  reached his age of superannuation.  Noticing Rule  351-A of the Civil Services Rules and that the  departmental proceeding was initiated after the  retirement of the employee, the same was held to  be impermissible in law.  Although it was not  necessary to pronounce upon the construction of  Rule 351-A involving a case where a departmental

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proceeding was initiated prior to reaching of the  age of superannuation by the delinquent officer, it  was observed that as the officer had retired on 31st  March, 1987 and proceedings were initiated  against him on 12th April, 1991, proviso appended  to the Rule would be applicable.

Reliance has also been placed on Bhagirathi  Jena vs. Board of Directors, O.S.F.C. & Ors. [1999  (3) SCC 666], wherein this Court was concerned  with interpretation of Regulation 17 of the Orissa  State Financial Corporation Employees’ Provident  Fund Regulations, 1959".

To the same vein is the decision of this Court in State of U.P. & Ors. vs.  R.C. Misra [2007(4) SCALE 595].

       We are, therefore, of the opinion that it was permissible for the Bank  to continue with the disciplinary proceedings relying on or on the basis of  Regulation 20(3)(iii) of the Punjab National Bank (Officers’) Service  Regulations, 1979.

15.     It is true that the Disciplinary Authority in its order while imposing   punishment observed that the terminal dues of the appellant were to be  settled.  It was merely an observation to take case of a contingency which  might arise.  No positive direction was issued in that behalf and, thus, no  legal right thereby was created in favour of the appellant to obtain the retiral  benefits.  What it meant thereby was that the law would take its own course.   

16.     We may also at this juncture notice the relevant provisions of the  Punjab National Bank Employees’(Pensions) Regulations, 1995.  Regulation  22 of the said Regulation reads as under:

"22 (i)- Resignation or dismissal or removal  or termination of an employee from the services of  the Bank shall entail forfeiture of his entire past  service and consequently shall not qualify for  pensionary benefits."  

       Indisputably as a consequence of the order imposing the punishment  of dismissal from service the appellant would not have qualified for the  pensionary benefits.  Our attention, however, has been drawn by Mr. Saxena  to Regulations 43 and 48 to contend that even for the purpose of withholding   pension, a specific order in that behalf by a competent authority was  required to be passed.  Pension Regulation is meant to be applicable where  pension is required to be paid.  It also provides for recovery of pecuniary  loss caused to the Bank from the pensionary benefits of the employee.   

       Regulations 43 and 48 of the Pension Regulation are as under:

"43. Withholding or withdrawal of pension. \026  The Competent  Authority may, by order in  writing, withhold or withdraw a pension or a part  thereof, whether permanently or for a specified  period, if the pensioner is convicted of a serious  crime or criminal breach of trust or forgery of  acting fraudulently or is found guilty of grave  misconduct.

Provided that where a part of pension is  withheld or withdrawn, the amount of such  pension shall not be reduced below the minimum  pension per mensem payable under these

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regulations."                                                    

"48. Recovery of Pecuniary loss caused to the  Bank \026 (1)  The Competent Authority may  withhold or withdraw a pension or a part thereof,  whether permanently or for a specified period and  order recovery from pension of the whole or part  of any pecuniary loss caused to the Bank if in any  departmental or judicial proceedings the pensioner  is found guilty of grave misconduct or negligence  or criminal breach of trust or forgery or acts done  fraudulently during the period of his service:

Provided that the Board shall be consulted before  any final orders are passed;

Provided further that departmental proceedings, if  instituted while the employee was in service, shall,  after the retirement of the employee, be deemed to  be proceedings under these regulations and shall  be continued and concluded by the authority by  which they were commenced in the same manner  as if the employee had continued in service;

(2)  No departmental proceedings, if not instituted  while the employee was in service, shall be  instituted in respect of an event which took place  more than four years before such institution:

Provided that the disciplinary proceedings so  instituted shall be in accordance with the  procedure applicable to disciplinary proceedings in  relation to the employee during the period of his  service.

(3)  Where the Competent Authority orders  recovery of pecuniary loss from the pension, the  recovery shall not ordinarily be made at a rate  exceeding one-third of the pension admissible on  the date of retirement of the employee:

Provided that where a part of pension is withheld  or withdrawn, the amount of pension drawn by a  pensioner shall not be less than the minimum  pension payable under these regulations."          

17.     Where a proceeding is initiated for withholding or withdrawal of  pension, Regulation 43 of the Pension Regulations would be attracted. But  provisions of the said Regulation if read in its entirety clearly go to show  that an officer would not qualify for pensinary benefits, if inter alia, he is  dismissed from services.

       Regulation 48 empowers the Bank to recover pecuniary loss caused to  it from the pensionary benefits.  Regulation 20(3)(iii) of the Discipline and  Appeal Regulations must be read in conjunction with the Pension  Regulations.  Where the employees are pension optees, Regulation 48(1)  shall apply.  In any event, if an officer is removed or dismissed from service  under Regulation 4 of the (Discipline & Appeal) Regulations, the Bank need  not take recourse to Regulation 48 of the Pension Regulations as Regulation  22 thereof would be attracted.

       We are, therefore, of the opinion that the High Court committed a  manifest error in passing the impugned judgment.  

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18.     Moreover, it now a trite law that ordinarily the High Court should not  interfere with the quantum of punishment imposed by the Disciplinary  Authority.  [See U.P.S.R.T.C. v. Ram Kishan Arora, 2007 (6) SCALE 721]   It has not been found by the High Court that the punishment imposed upon  the appellant was impermissible in law or wholly disproportionate to the  misconduct found to have been committed by the delinquent officer.  

19.     Our attention has been drawn to a decision of this Court in S.P.  Badrinath vs. Govt. of A.P. and others [2003(8) SCC 1].  This decision  has no application in this case, as we have noticed in the present case that  the acts of misconduct proved against the appellant were of grave nature.      20.     The High Court itself has noticed a large number of decisions and  formed the opinion that the charges levelled against the delinquent officer  were of grave nature.  A major punishment may be inflicted even where no  pecuniary loss was caused to the Bank by reason of the act of the delinquent  officer.  In support of the aforementioned proposition of law, the High Court  opined:

  "The charges leveled against the petitioner, which  were found proved upon enquiry, are quite serious  in nature.  The petitioner had engaged himself in  reckless lending causing huge financial loss to the  Bank to the extent of Rs. 1,14,87,164.76. It also  shows that the petitioner had disbursed loan  through middlemen and demanded and received  illegal gratification from a borrower. We are of the  considered opinion that in such cases, the officers  of the Bank should not be permitted to continue in  service at all.

Once the employer has lost the confidence  in the employee and the bona fide loss of  confidence is affirmed, the order of punishment  must be considered to be immune from challenge,  for the reason that discharging the office of trust  and confidence requires absolute integrity. A  necessary implication which must be engrafted on  the contract of service is that the servant must  undertake to serve his master with good faith and  fidelity. In a case of loss of confidence,  reinstatement cannot be directed. Granting such an  employee the relief of reinstatement would be "an  act of misplaced sympathy which can find no  foundation in law or in equity." (Vide Air India  Corporation Bombay Vs. V.A. Ravellow, AIR  1972 SC 1343; The Binny Ltd. Vs. Their  Workmen, AIR 1973 SC 1403; Kamal Kishore  Lakshman Vs. Management of M/s. Pan American  World Airways Inc & Ors., AIR 1987 SC 229;  Francis Kalein & Co. Pvt. Ltd. Vs. Their  Workmen, AIR 1971 SC 2414; Regional Manager,  Rajasthan SRTC Vs. Sohan Lal, (2004) 8 SCC  218; and Bharat Heavy Electricals Ltd. Vs. M.  Chandrashekhar Reddy & Ors., 2005 AIR SCW  1232).   

In Kanhaiyalal Agrawal & Ors. Vs. Factory  Manager, Gwaliar Sugar Co. Ltd., (2001) 9 SCC  609, the Hon’ble Supreme Court laid down the test  for loss of confidence to find out as to whether  there was bona fide loss of confidence in the  employee, observing that, (i) the workman is  holding the position of trust and confidence; (ii) by  abusing such position, he commits act which

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results in forfeiting the same; and (iii) to continue  him in service/establishment would be  embarrassing and inconvenient to the employer, or  would be detrimental to the discipline or security  of the establishment. Loss of confidence cannot be  subjective, based upon the mind of the  management. Objective facts which would lead to  a definite inference of apprehension in the mind of  the management, regarding trustworthiness or  reliability of the employee, must be alleged and  proved."

       Reliance in this regard has also been placed by the High Court on the  decision of State Bank of India vs. Bela Bagchi [AIR 2005 SC 3272].

21.     The High Court, however, in our opinion, posed unto itself a wrong  question of law that despite applicability of Regulation 20(3)(iii) of the  Punjab National Bank Officer Employees’ (Discipline and Appeal)  Regulations, 1977, the Bank exceeded its jurisdiction in continuing the  disciplinary proceedings after 31.1.1997 on which date the appellant reached  the age of superannuation.

22.     For the reasons aforementioned, the appeal preferred by the appellant  must be dismissed and the one preferred by the Bank must be allowed.   Resultantly, Civil Appeal No. 971 of 2007 is dismissed and Civil Appeal  No. 975 of 2007 is allowed.  However, in the facts and circumstances of the  case, there shall be no order as to costs.