http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 16  

PETITIONER: K.I. SHEPHARD & ORS. ETC. ETC.

       Vs.

RESPONDENT: UNION OF INDIA & ORS.

DATE OF JUDGMENT18/09/1987

BENCH: MISRA RANGNATH BENCH: MISRA RANGNATH DUTT, M.M. (J)

CITATION:  1988 AIR  686            1988 SCR  (1) 188  1987 SCC  (4) 431        JT 1987 (3)   600  1987 SCALE  (2)599  CITATOR INFO :  F          1989 SC 568  (12)  RF         1989 SC1136  (44)  RF         1992 SC 248  (79)

ACT:      Banking Regulation Act, 1949:      Section  45-Amalgamation  of  banks-Employees  excluded from employment  by transferee  banks-Draft scheme excluding names  of   employees-Doctrine  of  natural  justice-Whether applicable-Post-      decisional  hearing-Whether  sufficient-Examination  of dispute   regarding   requirement   of   Procedure   Whether precluded-Schememaking process-Whether legislative.      Administrative Law:      Amalgamation  of   banks-Exclusion  of  employees  from employment  by   transferee   banks   in   accordance   with amalgamation    scheme-Doctrine    of    natural    justice- Applicability of.

HEADNOTE:      The Hindustan  Commercial Bank, the Bank of Cochin Ltd. and Lakshmi  Commercial Bank  were amalgamated  with  Punjab National Bank, Canara Bank, State Bank of India respectively in  terms  of  separate  schemes  drawn  under  the  Banking Regulation Act,  1949, and pursuant thereto 125 employees of these  banks   were  excluded  from  employment,  and  their services were  not taken  over by  the respective transferee banks. Some of these excluded employees filed writ petitions before the  High Court  which granted partial relief, but on appeal by  the  transferee  Bank  the  Writ  Petitions  were dismissed by the Division Bench.      Against this,  appeals  by  Special  Leave  were  filed before this Court. Some of the excluded employees filed writ petitions before this Court directly.      It was  contended on  behalf of  the excluded employees that the draft schemes did not include any name of employees intended to  be excluded; that no opportunity of being heard as afforded  to them  before exclusion  was ordered, and the authorities concerned  had not  acted fairly;  that none  of them was responsible for ficticious, improper or 189

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 16  

on-business  like   advances  of  loan  to  parties  thereby bringing conditions nearabout bankruptcy for the appropriate banking companies,  that many  other employees  against whom there were  definite charges already pending enquiry or even orders of  dismissal had  been proposed  had been taken over and retained  in service of the transferee banks while these excluded employees,  without justification,  had been called upon to face this unfortunate situation.      The transferee banks, the Reserve Bank of India and the Union of  India  filed  affidavits  in  opposition.  It  was contended on behalf of the Union of India that the scheme in respect of  each of  the amalgamated banks had been approved by it  as required  under the  Act and  since  finality  was attached  to   such  schemes,   the  schemes  could  not  be challenged, particularly in view of the provisions contained in Article  31-A of  the Constitution.  It was  contended on behalf of the Reserve Bank of India that law did not require that the  draft scheme  should  contain  the  names  of  the employees to  be excluded,  that the  incorporation  of  the names finalised  on the  basis of  scrutiny of  the  records before the schemes were placed before the RBI was sufficient compliance  of   the  requirements  of  the  law;  that  the provisions of  the Act  did not  confer  any  right  on  the employees of being heard; that the scheme-making process was legislative in character and, therefore, did not come within the ambit  of natural  justice, and  the action,  not  being judicial  or   quasijudicial  and,   at  the   most,   being administrative or  executive was  also not open to challenge on allegations  of violation  of rules  of natural  justice; that moratorium  under the statutory provisions could not be beyond six  months and  in view  of the fact that the entire operation had to be finalised within a brief time frame, the requirement of  an enquiry  by notice to all the officers to be excluded  could not  have been  intended to  be implanted into the  provisions of  section 45  and that  provision  of compensation had  been made for those who were excluded from the respective schemes.      Allowing the writ petitions and appeals, this Court, ^      HELD:  1.   Rules   of   natural   justice   apply   to administrative action  and the decision to exclude a section of the  employees without  complying  with  requirements  of natural justice was bad. [206H]      2.1 Fair  play is part of public policy and a guarantee for justice to citizens. In our system of Rule of Law, every social agency conferred with power is required to act fairly so that  social action  would be  just, and  there would  be furtherance of the well-being of citizens. [207E] 190      2.2 The  rules of  natural justice  have developed with the growth  of A  civilization and  the content  thereof  is often considered  as  a  proper  measure  of  the  level  of civilization and  Rule of  Law prevailing  in the community. [207E-F]      2.3 Natural  justice generally  requires  that  persons liable to  be directly  affected by  proposed administrative acts, decisions  or proceedings  be given adequate notice of what is  proposed so  that they  may be in a position (a) to make representation on their own behalf; (b) or to appear at a hearing  or enquiry  (if one is held); and (c) effectively to prepare  their own  case and  to answer the case (if any) they  had   to  meet.   Even  when   a  State   agency  acts administratively,   rules    of   natural    justice   would apply.[206C-D]      3.1 Section  45 of the Banking Regulations Act provides

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 16  

a legislative  scheme and the different steps required to be taken have  been put  one  after  the  other.  On  a  simple construction of sub-sections (5) and (6) and on the basis of the sequence pattern adopted in section 45, it is clear that the Act  contemplates the  employees to  be excluded  to  be specifically named  in the draft scheme. Since it is a draft scheme prepared  by RBI  and right  to  object  or  to  make suggestions is  extended to both the banking company as also the transferee bank, and in view of the fact that clause (i) of sub-section  (5) specifies this item to be a matter which may be  included in  the scheme,  it must  follow  that  the legislative intention  is that  the scheme would incorporate the names  of such  employees as are intended to be excluded in accordance  with the  scheme. Once  it is incorporated in the scheme,  the banking company as also the transferee bank would be  entitled to  suggest/object to  the  inclusion  of names of employees. [199E-F; H; 200A-B]      3.2 In  case some  employees of the banking company are intended to be excluded, their names have to be specifically mentioned in  the scheme at the draft stage. The requirement of specific  mention is significant and the legislature must be taken  to have  intended compliance of the requirement at that stage. The excluded employees in the instant case, were in employment  under the  contract in  the banking companies which were  private banks.  They  have  been  excluded  from service under  the transferee  banks and  the contracts  had been terminated  as a  result of inclusion of their names in the schemes.  This exclusion  has  adversely  affected  this category of  employees and  has brought  about prejudice and adverse civil consequences to them. [200D-E]      4.1 Natural  justice cannot be employed in the exercise of legisla- 191 tive power.  Power has  been conferred on the RBI in certain situations to  A take  steps for  applying  to  the  Central Government for  an order of moratorium and during the period of  moratorium   to   propose   either   reconstruction   or amalgamation of  the  banking  company.  A  scheme  for  the purposes contemplated  has to  be framed  by RBI  and placed before the  Central Government  for sanction. Power has been vested in  the  Central  Government  in  terms  of  what  is ordinarily known  as a Henery-8 clause for making orders for removal of difficulties. [201H; 202A-B]      4.2 Section  45(11) requires  that copies of the scheme as also such orders made by the Central Government are to be placed before  both Houses  of Parliament.  This requirement does  not   make  the   exercise  in  regard  to  schemes  a legislative process.  Framing of the scheme under section 45 does not  involve a  legislative process, and as such, rules of natural  justice are  applicable  to  the  instant  case. [202C]      4.3 The fact that orders made by the Central Government for removing  difficulties as  contemplated under sub-clause (10) were  also to  be  placed  before  the  two  Houses  of Parliament makes it abundantly clear that the placing of the scheme before  the two  Houses is  not a  relevant test  for making the scheme framing process legislative. [203B]      5.1 RBI  which monitored  the three  amalgamations  was required to  act fairly  in  the  facts  of  the  case.  The situation necessitated  a participatory enquiry in regard to the excluded  employees.  If  an  opportunity  to  know  the allegations and  to have  their say  had been afforded, they could have  no grievance  on this score. The action deprives them  of   their  livelihood   and  brings   adverse   civil consequences and  could obviously  not be  taken on the ipse

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 16  

dixit of  RBI owners  without verification of facts. In view of the  time frame,  a detailed  enquiry may not be possible but keeping  the legislative  scheme  in  view,  perhaps,  a simpler enquiry could be afforded. [206E-F]      5.2 In the facts of the case, there is no justification to hold  that rules  of natural  justice have been ousted by necessary implication  on account  of the time frame. On the other hand,  the time  limited by statute provides scope for an opportunity  to be  extended  to  the  intended  excluded employees before  the scheme  is finalised so that a hearing commensurate to  the situation  is afforded before a section of the employees is thrown out of employment. [207F-G]      5.3 There  is no  justification to  think  of  a  post- decisional hearing. H 192 on the  other  hand,  the  normal  rule  should  apply.  The excluded  employees   have  already   been  thrown   out  of employment and  having been deprived of livelihood they must be facing serious difficulties. There is no justification to throw  them  out  of  employment  and  then  given  them  an opportunity of  representation when  the requirement is that they should have the opportunity as a condition precedent to action. It  is common  experience that  once a  decision has been  taken,  there  is  a  tendency  to  uphold  it  and  a representation may  not really  yield any  fruitful purpose. [208A-C]      6. Protection of the umbrella of conclusive evidence is not attached to a situation as in the instant case, so as to bar the question regarding the requirements of the procedure laid down  under the Act and the opportunity afforded to the excluded employees from being examined. There is, therefore, nothing in  sub-section  (7A)  of  section  45  to  preclude examination of the question. [208G]      [Each of  the three  transferee banks  should take over the excluded  employees on  the same terms and conditions of employment under  the respective  banking companies prior to amalgamation. The employees would be entitled to the benefit of continuity  of service  for all purposes including salary and  perks   throughout  the  period.  It  is  open  to  the transferee banks to take such action as they consider proper against these  employees in accordance with law. There is no justification to penalise some of the excluded employees who have not  come to  the Court.  They too shall be entitled to the same benefits as the petitioners.] [208H; 209A-B]      Union of  India &  Anr. v.  Cynamide India Ltd. & Anr., [1987] 2  SCC 720;  Perre Brothers  v.  Citrus  organisation Committee, [1975]  10 SASR 555; Re (H) K (an infant), [1967] 1 AER  226; State  of Orissa  v. Dr.  (Miss) Binapani  Dei & Ors., [1967]  2 SCR  625; A.K  Kraipak &  ors., v.  Union of India &  Ors., [1970] 1 SCR 457; Chandra Bhavan Boarding and Lodging, Bangalore  v. The  State of Mysore & Anr., 11970] 2 SCR 600;  Swadeshi Cotton  Mills v. Union of India, [1981] 2 SCR 533 and Smt. Somavanti & Ors. v. State of Punjab & Ors., [1963] 2 SCR 774, referred to.

JUDGMENT:      ORIGINAL JURISDICTION:  Writ Petition  No. 177  of 1987 etc. etc.      (Under Article 32 of the Constitution of India).      Dr. L.M. Singhvi, K.K. Venugopal, M.K. Ramamurthi, V.M. 193 Tarkunde,  R.K.  Garg,  Ravi  P.  Wadhwani,  Vrinda  Grover, Vandana Chak,  Ranjeet Kumar,  M.N. Krishnamani, V. Shekhar,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 16  

B.S.  Maan,   M.A.  Chinnaswami,  V.J.  Francis,  Mathai  M. Paikeday,  N.M.  Popli,  M.A.  Krishnamurthi,  Mrs.  Chandan Ramamurthi, Balbir  Singh,  Rajan  Karanjawala,  Mrs.  Manik Karanjawala, Ravi  P. Wadhwani,  P.N. Mishra,  Ashok Grover, Ezaz Manbool, and K.K. Mohan for the Petitioners.      G. Ramasvamy,  Additional Solicitor  General, Dr.  Y.S. Chitale, M.M. Abdul Khader, Soli J. Sorbjee, K.N. Bhat, G.L. Sanghi, O.C.  Mathur, Miss Srieen Sethna, Harish Salve, H.S. Parihar,  Vipin   Chandra,  Vijay   Kr.  Verma,  Miss  Madhu Moolchandani, Gopal  Subramium, Halida  Khatoon, Mrs. Sushma Suri and P. Parmeshwaran for the Respondents.      E.C. Aggarwala and D.D. Gupta for the Intervener.      The Judgment of the Court was delivered by      RANGANATH MISRA, J. The writ petitions under Article 32 of the Constitution and appeals by special leave are against the judgment  of the Division Bench of the Kerala High Court in writ  appeals have  a common set of facts as also law for consideration. These  matters have  been heard  together and are disposed of by this common judgment.           Hindustan Commercial Bank (’Hindustan’ for short). The Bank  of Cochin  Ltd. (hereafter  referred to as ’Cochin Bank’) and  Lakshmi Commercial  Bank (’Lakshmi’  for  short) were private banks. Action was initiated under section 45 of the Banking  Regulation Act,  1949  (’Act’  for  short)  for amalgamation of these three banks with Punjab National Bank, Canara Bank and State Bank of India respectively in terms of separate schemes  drawn under  that provision  of  the  Act. Amalgamation has  been made.  Pursuant to  the  schemes,  28 employees of  Hindustan, 21  employees of Cochin Bank and 76 employees of Lakshmi were excluded from employment and their services were  not taken  over by  the respective transferee banks. Some  of these  excluded employees of the Cochin Bank went before  the Kerala  High Court for relief under Article 226 of  the Constitution.  A learned  Single Judge gave them partial relief but on an appeal to the Division Bench by the transferee bank  concerned  the  writ  petitions  have  been dismissed. The civil appeals are against the decision of the Division Bench.  The writ  petitions directly  filed  before this  Court  are  by  some  of  the  excluded  employees  of Hindustan and Lakshmi respectively. 194      Though  employees  of  the  other  two  banks  had  not challenged the  vires of section 45 of the Act, on behalf of Lakshmi such a challenge has been made. Since the grounds of attack on  this score  did not  Impress us at all, we do not propose to refer to that aspect of the submissions involving interpretation of  Article 31-A,  Article 16 and Article 21. It has  often been said by this Court that Courts should not enter into  constitutional issues and attempt interpretation of its provisions unless it is really necessary for disposal of the  dispute. In  our opinion, this group of cases can be disposed of  without reference  to question of vires of some part of  section 45  of the  Act being  examined. Counsel on behalf of the excluded employees have broadly contended that the draft  schemes did  not include  any name  of  employees intended to  be excluded;  no opportunity of being heard was afforded to  them before  exclusion was  ordered  under  the schemes and the authorities concerned have not acted fairly; they deny  the allegation  that any  of them was responsible for ficticious,  improper or  non-business like  advances of loan to  parties  thereby  bringing  conditions  near  about bankruptcy for the appropriate banking companies; many other employees against  whom there  were definite charges already pending  enquiry  or  even  orders  of  dismissal  had  been proposed have been taken over and retained in service of the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 16  

transferee banks  while  these  excluded  employees  without justification have been called upon to face this unfortunate situation.      The  transferee   banks,  the  Reserve  Bank  of  India (hereafter referred  to as  RBI for  short) and the Union of India have  appeared and filed affidavits in opposition. The Union of  India has  contended that the scheme in respect of each of the banks that has got amalgamated had been approved by it  as required  under the  Act and  since  finality  was attached to  such schemes challenge was not open against the schemes particularly  in view of the provisions contained in Article 3  I-A of the Constitution. On behalf of the Reserve Bank of  India, several  contentions were  raised by  way of opposition and shortly stated these submissions are:-           (1) Law  does not  require that  the draft  scheme should contain the names of the employees to be excluded;           (2) The  incorporation of  the names  finalised on the basis of scrutiny of the records before the schemes were placed before  the RBI  was  sufficient  compliance  of  the requirements of the law; 195           (3) the  provisions of  the Act did not confer any      right on the employees of being heard;           (4) the  scheme-making process  was legislative in      character and  therefore did  not come within the ambit      of natural  justice. Alternately  the action  not being      judicial  or  quasi-judicial  and  at  the  most  being      administrative  or  executive  was  also  not  open  to      challenge on  allegations  of  violation  of  rules  of      natural justice;           (5)  moratorium  under  the  statutory  provisions      could not  be beyond six months and in view of the fact      that the  entire operation had to be finalised within a      brief time  frame, the  requirement of  an  enquiry  by      notice to  all the  officers intended  to  be  excluded      could not  have been  intended to be implanted into the      provisions of section 45; and           (6) Provision  of compensation  has been  made for      those who were excluded from the respective scheme. Each of  the transferee  banks generally  adopted the  stand taken by RBI.      Before we  proceed to  examine the  tenability  of  the several contentions  and counter contentions advanced at the hearing, it  is appropriate  that we  refer to  the relevant provisions of  the Act.  The entire  law applicable  to  the facts of  these cases  is to be found in Part Ill of the Act and in  particular in  section 45.  As far as relevant, that section provides:                "Notwithstanding anything  contained  in  the           foregoing provisions  of this Part or in any other           law or  any agreement or other instrument, for the           time being  in force.  where  it  appears  to  the           Reserve Bank  that there  is good reason so to do,           the  Reserve   Bank  may   apply  to  the  Central           Government for  an order  of moratorium in respect           of a banking company.                (2) The Central Government, after considering           the application made by the Reserve Bank under           sub-section (1), may make an order of moratorium           staying the commencement or continuance of all           actions and proceedings against the company for a           fixed period of time on such terms and conditions           as it thinks fit and proper and may 196           from time  to time  extend the  period so  however

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 16  

         that the  total period  of  moratorium  shall  not           exceed six months;                (3) ..................... ...................           (4)  During  the  period  of  moratorium,  if  the           Reserve Bank is satisfied that-                (a) in the public interest; or                (b) in the interests of the depositors; or                (c) in  order to secure the proper management           of the banking company; or                (d) in the interests of the banking system of           the country  as a whole,-it is necessary so to do,           the Reserve Bank may prepare a scheme-                (i) for  the reconstruction  of  the  banking           company, or                (ii) for  the  amalgamation  of  the  banking           company with  any other  banking  institution  (in           this  section   referred  to  as  "the  transferee           bank").                (5)  The   scheme   aforesaid   may   contain           provisions  for   all  or  any  of  the  following           matters, namely:-           (a)...............................................           (b)...............................................           (c)...............................................           (d)...............................................           (e)...............................................           (f)...............................................           (g)...............................................           (h)............................................... 197           (i) the  continuance of  the services  of all  the           employees of  the banking  company (excepting such           of them as not being workmen within the meaning of           the Industrial Disputes Act, 1947 are specifically           mentioned in  the scheme)  in the  banking company           itself on  its reconstruction  or, as the case may           be,  in   the  transferee   bank   at   the   same           remuneration and  on the same terms and conditions           of service,  which they  were getting  or, as  the           case may  be, by  which they  were being governed,           immediately  before  the  date  of  the  order  of           moratorium:           Provided.........................................           (j) notwithstanding  anything contained  in clause           (i) where  any of  the employees  of  the  banking           company not  being workmen  within the  meaning of           the Industrial Disputes Act, 1947 are specifically           mentioned in the scheme under clause (i), or where           any employees  of  the  banking  company  have  by           notice in writing given to the banking company or,           as the  case may  be, the  transferee bank  at any           time before the expiry of one month next following           the date  on which the scheme is sanctioned by the           Central Government,  intimated their  intention of           not becoming  employees of  the banking company on           its reconstruction  or, as the case may be, of the           transferee bank,  the payment to such employees of           compensation, if  any, to  which they are entitled           under the  Industrial Disputes Act, 1947, and such           pension,  gratuity,   provident  fund   and  other           retirement benefits  ordinarily admissible to them           under the  rules or  authorisations of the banking           company immediately  before the  date of the order           of moratorium:           (k)...............................................

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 16  

         (I) ..............................................           (6) (a)  A copy  of the  scheme  prepared  by  the           Reserve Bank shall be sent in draft to the banking           company and  also to  the transferee  bank and any           other   banking    company   concerned    in   the           amalgamation, for  suggestions and  objections, if           any, within  such period  as the  Reserve Bank may           specify for this purpose;                (b)  the   Reserve   Bank   may   make   such                modifications, 198           if any,  in the  draft scheme  as it  may consider           necessary in  the light  of  the  suggestions  and           objections received  from the  banking company and           also from  the  transferee  bank,  and  any  other           banking company  concerned in the amalgamation and           from any members, depositors or other creditors of           each of those companies and the transferee bank.           (7) The  scheme shall  thereafter be placed before           the Central  Government for  its sanction  and the           Centraly  Government   may  sanction   the  scheme           without   any    modifications   or    with   such           modifications as  it may  consider necessary;  and           the scheme as sanctioned by the Central Government           may specify in this behalf:           Provided .........................................           (7A)  The   sanction  accorded   by  the   Central           Government under  sub-section (7),  whether before           or after  the commencement  of section  21 of  the           Banking Laws (Miscellaneous Provisions) Act, 1963,           shall  be   conclusive  evidence   that  all   the           requirements   of   this   section   relating   to           reconstruction,  or,   as   the   case   may   be,           amalgamation have  been com  plied with and a copy           of the  sanctioned scheme  certified in writing by           an officer  of the Central Government to be a true           copy thereof,  shall,  in  all  legal  proceedings           (whether  in   appeal  or  otherwise  and  whether           instituted before or after the commencement of the           said section  21), be  admitted as evidence to the           same extent as the original scheme.           (8) on  and from  the  date  of  the  coming  into           operation of  the scheme or any provision thereof,           the scheme  or such  provision shall be binding on           the banking company or, as the case may be, on the           transferee bank  and  any  other  banking  company           concerned in  the amalgamation and also on all the           members,  depositors   and  other   creditors  and           employees of  each of  those companies  and of the           transferee bank,  and on  any other  person having           any right or liability in relation to any of those           companies or the transferee bank.............           (9)...............................................           (10) If  any difficulty arises in giving effect to           the provisions 199           of the scheme, the Central Government may by order           do anything  not inconsistent with such provisions           which appear  to it necessary or expedient for the           purpose of removing the difficulty.           (11) Copies  of the  scheme or  of any  order made           under sub-section  ( 10) shall be laid before both           Houses of Parliament, as soon as may be, after the           scheme  has   been  sanctioned   by  the   Central           Government or,  as the  case may be, the order has

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 16  

         been made.           (12)..............................................           (13)..............................................           (14)..............................................           (15).............................................. Allegations advanced  on behalf of the excluded employees is that the  draft scheme  contemplated under  sub-section 6(a) did not specifically mention names of the excluded employees and at  a later stage when the scheme was sent up by the RBI to the Central Government a schedule containing the names of the excluded  employees was attached to each of the schemes. Section 45  of the Act provides a legislative scheme and the different steps required to be taken under this section have been put  one after  the other.  A reading  of this  section indicates a sequence oriented pattern. What would ordinarily be incorporated  in the  draft scheme  is indicated  in sub- section (5).  After the  requirements of sub-section (5) are complied with  and the  scheme comes to a presentable shape, sub-section (6)(a)  requires a  copy thereof  as prepared by RBI to  be sent  to the banking company (transferer) as also to the  transferer  bank.  Clause  (b)  of  sub-section  (6) authorises RBI  to make modifications in the draft scheme as it may  consider necessary  in the  light of suggestions and objections  received   from  the  banking  company  and  the transferee bank.  On a  simple construction  of sub-sections (5) and (6) and on the basis of the sequence pattern adopted in section  45 it  would be  legitimate to hold that the Act contemplates the employees to be excluded to be specifically named in  the draft  scheme. Since  it  is  a  draft  scheme prepared  by  RBI  and  the  right  to  object  or  to  make suggestions is  extended to both the banking company as also the transferee bank, and in view of the fact that clause 200 (i) of  sub-section (5)  specifies this  item to be a matter which may be included in the scheme, it must follow that the legislative intention  is that  the scheme would incorporate the names  of such  employees as are intended to be excluded in accordance  with the  scheme. Once  it is incorporated in the scheme  the banking  company as also the transferee bank would be  entitled to  suggest/object to  the  inclusion  of names of  employees. It may be that the names of some of the employees may  have been  wrongly included  and the  banking company-the hither-to  employer would  be in  a position  to suggest/object to  the inclusion of the names or it may even be that  names of  some undesirable  employees which  should have been left out have been omitted and the banking company as the  extant employer  of such  employees  would  be  most competent to  deal with  such a  situation  to  bring  about rectifications by  exercising the power to suggest/object to the draft  scheme. The  contention advanced on behalf of RBI that since  it is  open to  it under  sub-section (6)(b)  of section 45  to make  modifications of the draft scheme, even if the  names were  not included  earlier, at  the stage  of finalising the  scheme for  placing it  before  the  Central Government as  required under  sub-section (7),  the earlier non-inclusion is  not a  contravention is not acceptable. We are of  the view  that in case some employees of the banking company are  intended to be excluded, their names have to be specifically mentioned in the scheme at the draft stage. The requirement of  specific  mention  is  significant  and  the legislature must be taken to have intended compliance of the requirement at that stage. Mr. Salve for the RBI adopted the stand that the provisions of section 45 did not specifically concede a  right of  objection or  making of  suggestions to employees and in sub-section (6)(b) mention was made only of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 16  

members, depositors  or other  creditors. For the reasons we have indicated above, this aspect of the contention does not impress us.      It is  the common  case of  RBI as  also the transferee banks that  the records  of service of each of the employees had been  scrutinised and  the names  for inclusion  in  the scheme were  picked  up  on  the  basis  of  materials  like irresponsible action  in regard  to sanction  of  loans  and accommodations to  customers which  affected  the  financial stability  of   the  banking   company  concerned.  Such  an allegation made  in the  counter-affidavit in this Court has been  seriously   disputed  by   the   litigating   excluded employees. It  is their  positive case  that  there  was  no foundation in such allegation and dubious loans, if any, had been sanctioned  under instructions  of the  superior in the banking  company   and,  therefore,   did  not  involve  any delinquency on  the part  of such employees. Since it is the case of the respondents that exclusion had 201 been ordered on the basis of an objective assessment and the very  A   foundation  of  the  allegation  upon  which  such assessment has  been made  is disputed,  a  situation  arose where  facts   had  to   be  ascertained,  and  it  involved assessment. That has admittedly not been done.      These employees  were in  employment under  contract in the banking  companies which  were private  banks. They have been excluded  from service  under the  transferee banks and the contracts  have now  been  terminated  as  a  result  of inclusion of  their names  in  the  schemes.  It  cannot  be disputed-nay  has  not  been-that  exclusion  has  adversely affected this  category of  employees and  has brought about prejudice  and  adverse  civil  consequences  to  them.  Two contentions have  been raised  with reference to this aspect of the matter:-,,           (1) There  has been  infraction of natural justice and           (2) The transferee banks which are ’State’ and RBI      which has monitored the operation being admittedly      ’State’ their action in excluding some of the employees      of the banking company and taking over the services of      others who are similarly situated is hit by Article 14      of the Constitution. It may be pointed out that      according to the excluded employees, many facing      similar allegations and/or in worse situation have been      taken over.      Whether there  is  infraction  of  Article  14  of  the Constitution on  the allegation  advanced would  depend upon facts  relating  to  the  excluded  employees  as  also  the allegedly derelict  employees whose services have been taken over. In  the absence  of an  enquiry in  which the excluded employees  should   have  been   given  an   opportunity  of participation it  has become  difficult for us to probe into the matter further. F      Admittedly the excluded employees have neither been put to notice that their services were not being continued under the transferee  banks nor had they been given an opportunity of  being  heard  with  reference  to  the  allegations  now levelled against  them. Learned  counsel  for  RBI  and  the transferee banks have taken the stand that the scheme-making process under  section 45  is legislative  in character and, therefore, outside  the purview  of  the  ambit  of  natural justice under  the protective  umbrella whereof  the need to put the excluded employees to notice or enquiry arose. It is well-settled that  natural justice  will not  be employed in the exercise  of legislative power and Mr. Salve has rightly

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 16  

relied upon  a recent  decision of this Court being Union of India H 202 & Anr.  v. Cynamide  India Ltd. & Anr., [ 1987] 2 SCC 720 in support of such a position. But is the scheme-making process legislative? Power  has been conferred on the RBI in certain situations  to  take  steps  for  applying  to  the  Central Government for  an order of moratorium and during the period of  moratorium   to   propose   either   reconstruction   or amalgamation of  the  banking  company.  A  scheme  for  the purposes contemplated  has to  be framed  by RBI  and placed before the  Central Government  for sanction. Power has been vested in  the  Central  Government  in  terms  of  what  is ordinarily known  as a Henery-8 clause for making orders for removal of difficulties. Section 45(11) requires that copies of the  schemes as  also such  orders made  by  the  Central Government  are   to  be   placed  before   both  Houses  of Parliament. We  do not  think  this  requirement  makes  the exercise in  regard to  schemes a legislative process. It is not necessary  to go  to any  other authority  as  the  very decision relied  upon by  Mr. Salve  in the case of Cynamide India Ltd. (supra) lays down the test. In paragraph 7 of the judgment it has been indicated:-           "Any attempt  to  draw  a  distinct  line  between           legislative and  administrative functions,  it has           been said,  is ’difficult in theory and impossible           in practice’.  Though difficult,  it is  necessary           that the line must sometimes be drawn as different           legal  rights  and  consequences  may  ensue.  The           distinction  between  the  two  has  usually  been           expressed as  ’one between  the  general  and  the           particular’. ’A  legislative act  is the  creation           and promulgation  of a  general  rule  of  conduct           without  reference   to   particular   cases;   an           administrative act  is the  making and  issue of a           specific direction or the application of a general           rule to  a particular  case in accordance with the           requirements  of   policy’.  ’Legislation  is  the           process of  formulating a  general rule of conduct           without reference  to particular cases and usually           operating in future; administration is the process           of  performing   particular   acts,   of   issuing           particular orders  or of  making  decisions  which           apply general  rules to  particular cases’. It has           also been  said: "Rule-making is normally directed           towards the  formulation of  requirements having a           general application  to all  members of  a broadly           identifiable class"  while, "an  adjudication,  on           the other hand, applies to specific individuals or           situations. But  this is only a broad distinction,           not necessarily always true." Applying these  tests it  is difficult to accept Mr. Salve’s contention that 203 the framing  of the  scheme  under  section  45  involves  a legislative process.  There are similar statutory provisions which require  placing of  material before the two Houses of Parliament yet  not involving  any legislative activity. The fact that orders made by the Central Government for removing difficulties as  contemplated under sub-clause (10) are also to be  placed before  the two  Houses of Parliament makes it abundantly clear  that the  placing of the scheme before the two Houses  is not  a relevant  test for  making the  scheme framing process  legislative. We accordingly hold that there is no  force in the contention of Mr. Salve that the process

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 12 of 16  

being  legislative,   rules  of  natural  justice  were  not applicable.      The alternate  contention on  this score  is  that  the scheme-making  process   being  an   executive  activity  or alternately  an  administrative  matter,  rules  of  natural justice have no application. This contention has again to be rejected. Neither  in "Privy  Council, Natural  Justice  and Certiorari" has indicated:-                "Formerly the presumption had been that there           WAS  obligation  to  give  a  hearing  unless  the           statute itself  indicated such  an obligation; now           the  presumption   is  that   there  is   such  an           obligation unless the statute clearly excludes it,           notwithstanding  the   vesting  of   a  power,  in           subjective terms,  in a  minister  responsible  to           Parliament." As has  beer. pointed  out by  Wells J. in Perre Brothers v. Citrus organisation Committee, [1975] 10 SASR 555:-                "It is  now well  established-and there is no           need for me to canvass the innumerable authorities           bearing     on     this     point-that     duties,           responsibilities    and     functions    of     an           administrative    authority    may    be    purely           ministerial, or  they may  embody  some  quasi  or           semi-judicial characteristic.                At one time a good deal of ingenuity-and with           all respect it seems to me a great deal of energy-           was wasted  in attempting  to  discern  whether  a           particular function  was administrative  or quasi-           judicial. In  my view  the House of Lords, and now           the High  Court, have,  to a very large extent set           all such controversies at rest.                In my opinion, the test now is not so much as           to  whether   one  can   fairly   call   something           "ministerial" or 204           "administrative", or  "quasi-judicial" but whether           the  duties  of  a  non-judicial  authority  must,           having regard  to  the  wording  of  the  Act,  be           carried out in a spirit of judicial fairness. "      In Re  (H) K (an infant), [1967] 1 AER 226 Lord Parker, CJ, found  that the  immigration officer was not acting in a judicial or  quasi-judicial capacity. Yet, the learned Chief Justice held  that he  still had to act fairly. In that case it meant  giving K  an opportunity of satisfying the officer as to  his age,  and for  that purpose  he had to let K know what his  immediate impression  was so that K could disabuse him of it. Lord Parker observed:-                "I appreciate that in saying that, it may be           said that one is going further than is permitted           on the decided cases because heretofore at any           rate the decisions of the courts do seem to have           drawn a strict line in these matters according to           whether there is or is not a duty to act           judicially or quasi-judicially". The obligation to act fairly even in administrative decision making has since been widely followed.      Mulla  in  ’Fairness:  The  New  Natural  Justice’  has stated:-                "Natural   justice    co-exists   with,    or           reflected,  a   wider  principle  of  fairness  in           decision-making  and   that   all   judicial   and           administrative  decision-making   and   that   all           judicial and  administrative decision-makers had a           duty to act fairly. "

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 13 of 16  

In the case of State of Horsily v. Dr. (Miss) Binapani Dei & ors., [ 1967] 2 SCR 625 this Court observed:-                "It is  true that the order is administrative           in character  but  even  an  administrative  order           which  involves   civil  consequences  as  already           stated, must  be made  consistently with the rules           of  natural  justice  after  informing  the  first           respondent of  the case of the State, the evidence           in support thereof and after giving an opportunity           to the first respondent of being heard and meeting           or explaining  the evidence.  No such  steps  were           admittedly taken;  the  High  Court  was,  in  our           judgment, right  in setting aside the order of the           State." 205 ln A.K  Kraipak &  ors. v.  Union of India & ors., [ 1970] 1 SCR 457  a  Constitution  Bench  quoted  with  approval  the observations of  Lord  Parker  in  Re:  (H)  K  (an  infant) (supra). Hegde, J. speaking for the Court stated:                "Very  soon   thereafter  a  third  rule  was           envisaged  and   that   is   that   quasi-judicial           enquiries must be held in good faith, without bias           and not  arbitrarily or  unreasonablly. But in the           course of years many more subsidiary rules came to           be added  to the  rules of  natural justice.  Till           very recently  it was  the opinion  of the  courts           that unless  the authority  concerned was required           by the  law  under  which  it  functioned  to  act           judicially there  was no  room for the application           of the  rules of  natural justice. The validity of           that limitation  is now questioned. If the purpose           of the  rules of  natural justice  is  to  prevent           miscarriage of  justice one fails to see why those           rules   should    be    made    inapplicable    to           administrative enquiries.  Often times  it is  not           easy   to    draw   the   line   that   demarcates           administrative   enquiries   from   quasi-judicial           enquiries.   Enquiries   which   were   considered           administrative  at   one  time   are   now   being           considered   as   quasi-judicial   in   character.           Arriving at  a just  decision is  the aim  of both           quasi-judicial enquiries as well as administrative           enquiries. An unjust decision in an administrative           enquiry may  have more  far reaching effect than a           decision in a quasi-judicial enquiry." These  observations   in  A.K.  Kopak’s  (supra)  case  were followed by  another Constitution  Bench of  this  Court  in Chandra Bhavan  Boarding and Lodging, Bangalore v. The State of Mysore  & Anr.,  l 19701  2 SCR  600. In  Swadeshi Cotton Mills v.  Union of  India, [1981]  2 SCR  533 a  three-Judge Bench of this Court examined this aspect of natural justice. Sarkaria, J. who spoke for the Court, stated:-           "During the last two decades, the concept of           natural justice has made great strides in the           realm of administrative law. Before the epoch-           making decision of the House of Lords in Ridge v.           Baldwin, it was generally thought that the rules           of natural justice apply only to judicial or           quasi-judicial proceedings; and for the purpose,           whenever a breach of the rule of natural justice           was alleged, Courts in England used to ascertain           whether the impugned action was taken by the           statutory authority or tribunal in the exercise of           its 206

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 14 of 16  

         administrative or quasi-judicial power. In India           also, this was the position before the decision of           this Court in Dr. Bina Pani Dei’s case (supra);           wherein it was held that even an administrative           order or decision in matters involving civil           consequences, has to be made consistently with the           rules of natural justice. This supposed           distinction between quasi-judicial and           administrative decisions, which was perceptibly           mitigated in Bina Pani Dei’s case (supra) was           further rubbed out to a vanishing point in A.K.           Kraipak’s case (supra) .........................           ". On the  basis of these authorities it must be held that even when a  State agency acts administratively, rules of natural justice would  apply. As  stated, natural  justice generally requires that  persons liable  to be  directly  affected  by proposed administrative  acts, decisions  or proceedings  be given adequate  notice of  what is proposed so that they may be in  a position  (a) to  make representations on their own behalf; (b)  or to appear at a hearing or-enquiry (if one is held); and  (c) effectively to prepare their own case and to answer the case (if any) they have to meet.      Natural justice has various facets and acting fairly is one of them. RBI which monitored the three amalgamations was required to  act fairly  in  the  facts  of  the  case.  The situation necessitated  a participatory enquiry in regard to the excluded  employees. Since  the decision to exclude them from service  under the  transferee banks is grounded upon a set of  facts the  correctness  whereof  they  deny,  if  an opportunity to  know the  allegations and  to have their say had been  afforded, they  could have  no grievance  on  this score. The  action deprives  them of  their  livelihood  and brings adverse civil consequences and could obviously not be taken on the ipse dixit of RBI officers without verification of facts. It is quite possible that a manoeuvring officer of the  banking   company  adversely   disposed  of  towards  a particular employee of such bank could make a report against such employee  and have  him excluded  from further  service under the  transferee bank.  The possibility of exclusion on the basis of some mistake such as to identity cannot also be ruled out.  There is  all the more apprehension of this type is the  process has  to be  completed quickly and very often the records  of a  large number  of  employees  have  to  be scrutinised. We  are of  the  view  that  rules  of  natural justice apply  to administrative  action and  in the instant cases the  decision to  exclude a  section of  the employees without complying  with requirements  of natural justice was bad. 207      It has  been contended  on behalf  of respondents  that moratorium could  be for  a total  period of  six months and that was  the time  allowed for  the entire  operation to be conducted.  In   view  of   the  time  frame,  by  necessary implication it  must  follow  that  application  of  natural justice compliance  of which  would involve a time-consuming process was  ruled out.  We do  not think  that there is any merit in  this contention  either. As  a fact, in respect of the three  banks the  total number  of excluded employees is around  125.   It  is   the  common  case  of  parties  that proceedings were  pending against  some of  them. It  may be that in  view of the time frame a detailed enquiry involving communication of  allegations, show  cause,  opportunity  to lead evidence  in support  of the allegations and in defence of the  stand of  the employees may not be possible. Keeping

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 15 of 16  

the legislative  scheme in  view perhaps  a simpler enquiry, for instance,  communication  of  the  allegation  and  even receiving an  explanation and  in cases where the allegation was serious  or there  was a  total denial  though there was firm basis  for the  allegation a  single  personal  hearing could be  afforded. In this case we are not really concerned with the  manner or  extent of  hearing as there has been no hearing at  all. It must, therefore, be held that the action of excluding  these employees  in the  manner done cannot be supported.      Fair play  is a  part of  the public  policy and  is  a guarantee for  justice to citizens. In our system of Rule of Law every  social agency conferred with power is required to act fairly  so that  social action  would be  just and there would be  furtherance of  the well-being  of  citizens.  The rules of  natural justice  have developed with the growth of civilisation and  the content thereof is often considered as a proper  measure of  the level  of civilisation and Rule of Law prevailing in the community. Man within the social frame has struggled  for centuries to bring into the community the concept of fairness and it has taken scores of years for the rules of  natural justice  to conceptually  enter  into  the field of  social activities. We do not think in the facts of the case  there is  any justification  to hold that rules of natural justice have been ousted by necessary implication on account of  the time  frame. On the other hand we are of the view that  the time limited by statute provides scope for an opportunity  to   be  extended   to  the  intended  excluded employees before  the scheme  is finalised so that a hearing commensurate to  the situation  is afforded before a section of the employees is thrown out of employment.      We may  now point  out that the learned Single Judge of the Kerala  High  Court  had  proposed  a  post-amalgamation hearing to  meet the  situation but that has been vacated by the Division Bench. For the 208 reasons we  have indicated,  there is  no  justification  to think of  a post-decisional  heading. On  the other hand the normal rule should apply. It was also contended on behalf of the  respondents  that  the  excluded  employees  could  now represent and their cases could be examined. We do not think that would  meet the ends of justice. They have already been thrown  out  of  employment  and  having  been  deprived  of livelihood they  must be  facing serious difficulties. There is no justification to throw them out of employment and then given  them   an  opportunity  of  representation  when  the requirement  is   that  they  should  have  the  opportunity referred to  above as a condition precedent to action. It is common experience that once a decision has been taken, there is a  tendency to  uphold it  and a  representation may  not really yield any fruitful purpose.      ’Amalgamation’ as such saved under Article 31A(1)(c) of the  Constitution   is  not  under  challenge  here.  Strong reliance, however, had been placed on the provisions of sub- section (7A)  of section 45 of the Act. The relevant part of it is as requoted here for convenience:-                "The  sanction   accorded  by   the   Central           Government  under  sub-section  (7)  ..  shall  be           conclusive evidence  that all  the requirements of           this section relating to ............ amalgamation           have been complied-with      This provision  is indeed one for purposes of evidence. In Smt. Somavanti & ors. v. State of Punjab & Ors., [19631 2 SCR 774  this Court  pointed out  that  there  was  no  real difference  between   ’conclusive  proof’  provided  for  in

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 16 of 16  

section 4  of the  Evidence Act and ’conclusive evidence’ as appearing in  sub-section (7A).  This provision does not bar the raising  of a dispute of the nature received here. As we have  already   pointed  out,   amalgamation  is  not  under challenge. Parties  are disputing as to what exactly are the requirements of  the procedure  laid down  under the Act and the  position  that  no  opportunity  was  afforded  to  the excluded employees is not in dispute. To a situation as here protection of  the umbrella  of conclusive  evidence is  not attached so  as to  bar the  question from  being  examined. There is, therefore, nothing in sub-section (7A) to preclude examination of the question canvassed here      The writ petitions and the appeals must succeed. We set aside  the  impugned  judgments  of  the  Single  Judge  and Division Bench of the Kerala High Court and direct that each of the three transferee banks 209 should take  over the  excluded employees  on the same terms and conditions  of employment  under the  respective banking companies  prior   to  moratorium.  The  employee  would  be entitled to  the benefit  of continuity  of service  for all purposes including  salary and  perks throughout the period. We leave it open to the transferee banks to take such action as  they   consider  proper   against  these   employees  in accordance with law. Some of the excluded employees have not come to  Court. There  is no  justification to penalise them for not  having litigated. They too shall be entitled to the same benefits  as the petitioners. Ordinarily the successful parties should  have been  entitled to  costs but in view of the fact  that they  are going back to employment, we do not propose to  make orders of costs against their employers. We hope and  trust that  the transferee banks would look at the matter with  an open mind and would keep themselves alive to the human problem involved in it. N.P.V.                          Petitions & Appeals allowed. 210