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CASE NO.: Appeal (civil)  2916 of 2007

PETITIONER: CHAIRMAN & M.D., K.S.R.T.C.

RESPONDENT: K.O. VARGHESE & ORS.

DATE OF JUDGMENT: 09/07/2007

BENCH: H.K. SEMA & P.K. BALASUBRAMANYAN

JUDGMENT: J U D G M E N T  

CIVIL APPEAL NO(s).   2916                 OF 2007 [@ Special Leave Petition (Civil) No. 19383-19390 of 2004]

P.K. BALASUBRAMANYAN, J.

               Leave granted.                 Heard learned counsel on all sides.   1.              This appeal by the Kerala State Road Transport  Corporation, hereinafter referred to as KSRTC, challenges the  decision of the High Court of Kerala in a series of Writ Appeals  rendered on 24.3.2004 pursuant to an order of remand made  by this Court in Civil Appeal Nos. 6651-6654 of 2000 and the  connected cases.  The decision remanding, was rendered on  17.4.2003 and the same is reported as Kerala State Road  Transport Corporation Vs. K.O. Varghese & Ors.   [(2003) 12  SCC 293].

2.              KSRTC is a Corporation established under the Road  Transport Corporation Act, 1950, hereinafter called, "the Act".   The Corporation was formed on 15.3.1965.  On 22.3.1965, the  employees of the Transport Department of the Government of  Kerala were absorbed in KSRTC.  KSRTC became functional  with effect from 1.4.1965.  In the general instructions issued  on 22.3.1965 in exercise of power under Section 34(1) of the  Act, the Government while transferring the existing transport  undertakings and their assets and liabilities to KSRTC, also  made applicable to it, all orders and notifications thereunto  issued by the Government, which were not inconsistent with  the provisions of the Act, until their alteration or repeal.  Part  II thereof dealt with the staff.  It would be profitable to set  down paragraphs 10 to 12 of that Order at this stage:                 "10.            All persons employed by  Government in the State Transport  Department and appointed substantively to a  permanent post in that Department who would  have continued in the service of Government  but for the transfer of the management of the  State Undertaking to the Corporation, shall be  treated as permanently transferred to the  Corporation for appointment under Section  14(2) of the Road Transport Corporation Act,  1950 (Central Act, LXIV of 1950) and on such  transfer they will be deemed to have vacated  office under Government and to have been  offered and to have accepted employment  under the Corporation.

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               Provided that the provision shall not apply to  persons, if any, appointed in the State  Transport Department to the posts of Director  of Transport and Chief Mechanical Engineer,  and such persons shall continue as  supernumeraries under Government service  until further orders.  

               11.             The Corporation shall guarantee  continued employment to all such personnel  as are transferred for service under the  Corporation, under the same terms and  conditions of service as were applicable to  them under Government immediately before  such transfer.

               12.             The Corporation shall pay to the  employees so transferred their pension,  gratuity and provident fund according to the  relevant rules, notifications and orders of  Government in force and applicable to them  immediately before such transfer as and when  such benefits accrue."

In paragraph 15, it was provided that the past services of the  transferred employees with the Government, would count for  the purposes of promotion, leave, pension and such other  benefits.  Thus the transferred employees who retired from  KSRTC were eligible for pension in terms of their conditions of  absorption.  But in terms of clause 10 they ceased to be  employees of the Government.   

3.              On 27.3.1984, the Government of Kerala authorized  KSRTC to pay pension to its employees as per Kerala Service  Rules, hereinafter referred to as "KSR".  The said  communication is on the following terms.                 "In continuation of the letter cited  above, I am directed to convey the Government  decision authorizing the KSRTC to pay pension  to its employees as per KSR and introduce GPF  instead of contributory provident fund with  effect from 1.4.1984.   

               The KSRTC will obtain written  undertaking from each employee to refund the  management share of contribution to GPF as  well as family pension fund hitherto made in  consultation with the Regional Provident Fund  Commissioner."                  

On 5.5.1984, an order was issued by the Managing Director of  KSRTC that all Corporation employees who retire after  1.4.1984 would be paid pension subject to the employees  fulfilling the stipulations therein.

4.              Then came the recommendations of the IV Pay  Commission and its acceptance by the State Government.  But  due to its precarious financial position, the Board of Directors  of KSRTC took a decision on 19.3.1986 to implement only  some of the recommendations with effect from 1.11.1986 and  an order in that regard was also issued.  On 2.2.1990, a  Memorandum of Settlement was drawn up, based on the  understanding arrived at between the management and the

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recognized Labour Unions.  As per that memorandum, the  benefits of the settlement were postponed till September 1991.   The benefits were thereafter made available.   

5.              This was followed by the report of the Fifth Pay  Commission and the acceptance by the Government of its  recommendations.  The benefits relating to pension and allied  matters were made applicable to persons who retired from  service prior to 1988 and the wage revision was given effect to  from 2.2.1990.  The financial condition of KSRTC was  precarious.  On 17.5.1991, KSRTC wrote to the Government  seeking its approval for implementation of the  recommendations of the Fifth Pay Commission in the  Corporation.  This was followed by letters detailing the  financial crisis faced by the Corporation.  Ultimately, by letter  dated 24.9.1992, the State Government advised KSRTC that it  may defer for better times, the implementation.  We quote the  letter hereunder:                 "Sir,         Sub:    KSRTC \026 Recommendations of                          the 5th Kerala Pay Commission  relating to pension and allied  matters \026 reg.  

               Ref.:   Your Lr. No. PLA 10/32886/90  dated 17.5.1991.

       Referring to the above, I am directed to  inform you that since the financial position of  KSRTC is not sound this may be deferred for   better times."           

Thus, the reliefs regarding revision of pensionary benefits as  recommended was not immediately implemented.

6.              Some of the employees of KSRTC filed a writ petition  in the High Court challenging this non-implementation.  The  High Court allowed the writ petition, O.P. 7176 of 1993 and  directed KSRTC to pay the arrears of the enhanced Dearness  Allowance from 1.7.1991 till 31.10.1991.  KSRTC appealed to  the Division Bench in W.A. 890 of 1993.  An interim order of  stay of the directions issued by the single judge was also  obtained.  Meanwhile, in another writ petition, O.P. No. 13233  of 1992, another single judge directed the Government to take  a policy decision on whether, the benefits of the Fifth Pay  Commission should be extended to the pensioners of KSRTC.  

7.              Pursuant to the above direction and in compliance  with it, the State Government by letter dated 16.5.1995  informed KSRTC as follows: "The matter has been examined by the  Government in detail and as the financial  position of KSRTC is not sound, it has been  decided that grant of benefits of the Fifth Pay  Commission to the pensioners of KSRTC may  be deferred for better times."

Thus, the policy decision taken by the State Government was  to direct KSRTC not to give the benefit of the Fifth Pay  Commission until better times.  Meanwhile, the writ appeals  filed by KSRTC were dismissed by the Division Bench which  also allowed appeals filed by some of the writ petitioners.  KSRTC challenged those decisions before this Court by way of  Special Leave to Appeal.  This Court entertained the appeals

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and by the judgment dated 17.4.2003, set aside the judgment  of the High Court and directed the High Court to reexamine  the question.  This Court noticed that the High Court has not  considered what exactly was the effect of Part III of KSR being  made applicable to KSRTC and whether the letter dated  16.5.1995 was in fact a direction in terms of Section 34 of the  Act.  This Court therefore directed the High Court to  reconsider those aspects and also consider the question  whether KSRTC as a statutory Corporation, did not have the  power to fix a date different from the date fixed for the  government employees for implementation of the  recommendations of the Fifth Pay Commission regarding  pensionary benefits and wage revision.  

8.              Back in the High Court, the Division Bench held  that the adoption of Part III of KSR by KSRTC, was an exercise  of legislation by reference and if and when the government  adopted the recommendation of the Fifth Pay Commission in  respect of its employees governed by Part III of KSR, KSRTC  was also obliged to implement the recommendation in respect  of its employees with effect from the same date.  The Division  Bench further held that the letter of the Government dated  24.9.1992, was not a direction in terms of Section 34 of the  Act.  The High Court also held that KSRTC did not have the  competence to fix a different cut-off date in respect of its  employees.  It ultimately held that in the absence of any  specific regulation being framed by KSRTC and in the absence  of a direction under Section 34 of the Act by the State  Government to KSRTC to fix a different cut-off date, KSRTC  was bound to implement the recommendation of the Fifth Pay  Commission and to grant revised pensionary benefits and  dearness relief to all its employees whether originally  transferred from the government department or subsequently  employed by KSRTC itself, on a par with the government  employees.  Thus, the appeals filed by the employees were  allowed and those filed by KSRTC were dismissed.  It is this  decision rendered after remand, that is challenged again in  these appeals.   

9.              Learned counsel for the KSRTC, the appellant,  submitted that the High Court was in error in holding that  KSRTC, an autonomous corporation, was not entitled to fix a  date of its own for implementation of revised pensionary  benefits as per the recommendation of the Fifth Pay  Commission.  He further submitted that the financial position  of KSRTC was precarious and in the face of that fact, the High  Court was in error in compelling KSRTC to implement the  recommendation of the Fifth Pay Commission regarding  pension and dearness allowance and a direction that would  lead to the winding up of the corporation itself, should not  have been issued in such a casual manner.  Learned counsel  further submitted that the High Court had earlier, on  6.3.1995, directed the government to take a policy decision  which would obviously be only one in terms of Section 34 of  the Act and pursuant to that direction, the government had  taken a decision and conveyed it to the corporation by its  communication, letter No.11969/L3/95/PW&T dated  16.5.1995 and this communication, in the context, can only  be understood as a direction under Section 34 of the Act.  The  High Court has not properly adverted to or considered the  effect of this communication.  Learned counsel submitted that  Part III of KSR had only been adopted for KSRTC or by KSRTC  and it was neither a case of legislation by incorporation nor a  case of legislation by reference.  For either of that to occur,  there must be two legislations or enactments, one of which

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must adopt the other.  Thus, the High Court was wrong in  holding that the adoption of Part III of KSR in KSRTC was a  legislation by reference.  Learned counsel submitted that there  was no provision in Part III fixing any date for revising pension  or for the grant of it.   

10.             In answer, learned counsel for the employees of  KSRTC submitted that as per the earlier direction of the State  Government, Part III of KSR had been made applicable to  employees of KSRTC and once Part III of KSR was made  applicable, the employees were entitled to pensionary benefits  as provided therein and that would include the right to  enhanced pension as and when they are enhanced.  Right to  pension included the right to it from a given date.  Here, the  date was the one adopted by the State Government.  He  submitted that the direction issued by the Government dated  27.3.1984 authorizing KSRTC to pay pension clearly justified  this position.  He also submitted that the High Court was  correct in holding that the communication dated 24.9.1992,  was not a direction under Section 34 of the Act.  He pointed  out that no formalities were complied with and the direction  was not even notified.  It was merely a reply to a letter sent by  KSRTC.  The communication dated 27.3.1984 would be a  direction in terms of Section 34 of the Act and KSRTC was  bound to pay any enhancement as and when it is given by the  State Government to its employees.  Counsel representing  those employees who were originally employees of the  Government added that those employees could not be  prejudiced by not giving them the same benefits as employees  of the Government in view of the order of their absorption in  KSRTC dated 22.3.1965. 11.             Before going into the other questions, we think it  proper to consider whether in the circumstances of the case  there has been a direction by the State Government in terms  of Section 34 of the Act.  Section 34 reads: "34. Direction by the State Government. \026  (1)  The State Government may, after  consultation with a Corporation established by  such Government, give to the Corporation  general instructions to be followed by the  Corporation, and such instructions may  include directions relating to the recruitment,  conditions of service and training of its  employees, wages to be paid to the employees,  reserves to be maintained by it and disposal of  its profits or stocks.

(2)     In the exercise of its powers and  performance of its duties under this Act, the  Corporation shall not depart from any general  instructions issued under sub-section (1)  except with the previous permission of the  State Government."

This Court has earlier indicated that a direction issued under  Section 34 by the Government is a general direction and the  Government ought not to issue a specific direction with regard  to any particular case.  (See Mysore State Road Transport  Corporation Vs. Babajan Conductor & another [(1977) 2  S.C.R. 925].  This Court has also held that until regulations  are made with the previous sanction of the State Government,  the directions given under Section 34 in respect of conditions  of service have got the force of law (See General Manager,  Mysore State Road Transport Corporation Vs. Devraj Urs .  & another [(1976) 2 S.C.C. 862].  It is in this context that the

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communication issued by the State Government to KSRTC in  respect of implementation of the recommendations of the Fifth  Pay Commission  regarding pensionary benefits has to be  considered.  

12.             It is clear from the communication dated 24.9.1992  that KSRTC had written a letter to the Government dated  17.5.1991 regarding the payment of additional benefits based  on the recommendations of the Fifth Pay Commission.  The  Government by that letter dated 24.9.1992, informed KSRTC  that since the financial position of KSRTC was not sound, the  proposal may be deferred for better times.  It was in that  context that writ petitions were filed in the High Court by  certain employees of the Corporation.  The High Court by  judgment dated 6.3.1995 noticed the stand of KSRTC in its  counter affidavit that it was not in a position financially to  meet the requirements, on accepting the recommendations of  the Fifth Pay Commission and KSRTC was facing great  financial difficulty.  The Court also noticed the submission of  learned counsel for KSRTC that since the matter related to a  policy decision, the advice of the State Government had to be  given due weightage and in the face of the earlier letter, the  matter had been referred to the Government and KSRTC will  take a decision as and when the Government approved the  policy of giving the benefits of Fifth Pay Commission to the  pensioners of KSRTC.  The court noticed that the pensioners  were senior citizens and therefore an expeditious decision by  the State Government was warranted. The court directed: "It is for the State Government to take a  decision in the mater having due regard to all  the relevant circumstances including the  financial stability of the Corporation.   Therefore, I direct the Government to take a  decision in the matter within a reasonable time  and the Corporation shall take further action  pursuant to the decision to be taken by the  Government.  A decision in this regard shall be  taken within a period of six months of the date  of receipt of a copy of this judgment."

13.             Pursuant to this direction of the High Court  obtained by employees or pensioners of KSRTC, the  Government considered the matter and with particular  reference to the order in the writ petitions, informed KSRTC by  letter dated 16.5.1995 that having examined the matter in  detail and since the financial position of KSRTC was not  sound, it was decided that grant of benefits of the Fifth Pay  Commission to the pensioners of KSRTC may be deferred for  better times.  

14.             As we understand this communication in the  context in which it was issued, we are of the view that this  amounts to a direction in terms of Section 34 of the Act.  It  must be remembered that this communication was issued  when the Government was directed by the High Court to take  a policy decision on the question of implementing the  recommendations of the Fifth Pay Commission in respect of  the employees of KSRTC.  Such a policy decision in the  absence of a regulation, could obviously be only in terms of  Section 34 of the Act.  Therefore, when in compliance with the  direction of the High Court, the Government took a policy  decision and communicated the same to KSRTC to defer the  implementation of the recommendations of the Fifth Pay  Commission, it could be understood only as a direction in

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terms of Section 34 of the Act.  The context in which the  communication dated 16.5.1995 was issued, according to us,  clearly shows that it was intended to be a direction in terms of  Section 34 of the Act and the argument that formalities had  not been complied with or that the same had not been notified,  does not enable the court to hold that the communication  dated 16.5.1995 must be understood only as a mere letter in  reply and nothing more.  The power to issue such a direction  is clearly traceable to Section 34 of the Act and the High Court  had obviously directed the Government to take that decision  having in mind Section 34 of the Act.  It is therefore clear that  the direction dated 16.5.1995 is a direction in terms of Section  34 of the Act.  The High Court, in our opinion, has not  considered the effect of the direction issued in O.P. No. 13233  of 1992-A and connected cases, and the decision taken by the  Government pursuant to that direction and the status of the  communication dated 16.5.1995.

15.             The High Court has rested its decision on the  direction of the Government dated 27.3.1984 authorizing  KSRTC to pay pension to its employees as per KSR and the  acceptance of the same by KSRTC by issue of the order dated  5.9.1984, obeying the direction and providing for payment of  pension in terms of KSR as an incorporation of KSR by  reference.  Proceeding from this, the High Court has held that  pension is payable to all the employees of KSRTC in terms of  Part III of KSR and this led to the position even as regards the  date of payment as fixed by the Government for its employees.   The High Court, though it noticed the decision in Union of  India Vs. P.N. Menon & ors. [AIR 1994 SC 2221] regarding  the entitlement of KSRTC to look into various aspects like its  financial ability to pay, has proceeded to reason that in view of  the adoption of Part III of KSR, the Corporation had lost its  right to fix a cut-off date in the absence of any direction under  Section 34 of the Act.  The court has also held that  communication of the Government dated 24.9.1992 had only  directed deferring of payment of pension as recommended by  Fifth Pay Commission and this meant that the Corporation  had no right to fix a cut-off date especially in the absence of  any regulation framed by it.  We are not in a position to  endorse this reasoning or conclusion of the High Court.   KSRTC is an autonomous Corporation established under the  Road Transport Corporation Act, 1950.  It can regulate the  service of its employees by making appropriate regulations in  that behalf.  Until such regulations are framed, it is entitled to  take note of its financial health in considering whether a  particular recommendation for enhanced pay or pension in  respect of Government employees should be adopted by it and  if it is to adopted by it, from what point of time.  This, of  course, would be subject to any direction that may be issued  by the State Government in terms of Section 34 of the Act.  In  the letter dated 24.9.1992 referred to by the High Court, the  Government had indicated that since the financial position of  KSRTC was not sound, the question of accepting the  recommendations of the Fifth Pay Commission relating to  pension and allied matters may be deferred for better times.   When the High Court intervened and directed the Government  to take a policy decision and not leave the matter pending in  view of the fact that the pensioners were generally senior  citizens, the Government reconsidered the question and after  examining the position in detail in the context of the financial  position of KSRTC, took a decision that the grant of benefits of  the Fifth Pay Commission to the pensioners of KSRTC may be  deferred for better times.  We have already held that this was a  direction to KSRTC in terms of Section 34 of the Act.  KSRTC

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was therefore bound to implement this direction in the  absence of a regulation in that behalf.   

16.             The High Court, in our view, is not correct in  thinking that there is any compulsion on KSRTC on the mere  adoption of Part III of KSR, to automatically give all  enhancements in pension and other benefits given by the  State Government to its employees.  There is no provision in  Part III of KSR containing such a stipulation.  It only provides  for payment of pension.  The question of revision or  enhancement of pension to its employees is left to KSRTC, an  autonomous Corporation, subject of course to any direction  that may be issued by the State Government under Section 34  of the Act.  The mere adopting of Part III of KSR does not  therefore shackle or control the power of KSRTC to take a  decision in the absence of any regulation already framed, that  the enhanced pensionary benefits as recommended by the  Fifth Pay Commission need not be paid commencing on the  same date as the State Government employees but the  question of enhancing pension could be considered at a later  point of time.  There is nothing in Part III of KSR to control the  power of KSRTC to decide that the recommendations of the  Fifth Pay Commission may be implemented with effect from a  particular date or that it need not be implemented at all in  view of the precarious financial condition of KSRTC.  The  reasoning therefore that the direction to adopt Part III of KSR  and the order adopting it by KSRTC would denude KSRTC of  its power to fix a cut-off date for adopting and implementing  the recommendations of the Fifth Pay Commission is found to  be not sustainable. 17.             Learned counsel for the respondents argued that  what the Government has directed is only to defer the  payment of pension and that meant that pension as  recommended by the Fifth Pay Commission had become  payable but only the actual payment stood deferred to a future  point of time.  In the context of what has happened here, this  argument cannot be accepted.  Obviously, the issue was  whether the recommendations of the Fifth Pay Commission  regarding enhanced payment of pension and other allowances  to retired employees should be implemented by KSRTC in the  situation in which it was placed and the direction of the  Government was that since the financial position was not  sound, the question had to be deferred.  The letter dated  16.5.1995 uses the expression:  "It has been decided that grant of benefits of  the Fifth Pay Commission to the pensioners of  KSRTC may be deferred for better times."   

As we understand it, this communication means that the very  question of adopting the recommendations of the Fifth Pay  Commission stood postponed for better times and it is not  possible to read and understand it as directing that pension  had to be paid in terms of the recommendations of the Fifth  Pay Commission but its actual payment may be postponed.   The grant itself was put off to a later point of time by the said  communication.  We, therefore, overrule this submission on  behalf of the respondents.  

18.             Even before us, also, it has been clearly pleaded by  KSRTC that its financial position is unsound. In fact, the High  Court has also noticed it.  This Court has held that the  financial position of a Corporation like KSRTC is certainly  relevant when the Corporation takes a decision as to whether  it should implement a recommendation for enhanced  emoluments and pension.   Since we find from the relevant

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aspects brought out that the financial position of KSRTC is not  sound, we are of the view that the decision taken by the State  Government not to implement, here and now, the  recommendations of the Fifth Pay Commission for KSRTC and  the decision based on it by KSRTC are fully justified.   Certainly, the decision cannot be said to be vitiated by any  extraneous consideration or perverse appreciation of the  circumstances obtaining.  

19.             The result of this discussion is to hold that the High  Court was in error in its decision and in directing that pension  had to be paid in terms of the recommendations of the Fifth  Pay Commission.  We therefore allow these appeals and setting  aside the decisions of the High Court dismiss the writ petitions  filed by the writ petitioners.  We make no order as to costs.