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PETITIONER: M.L.KAMRA

       Vs.

RESPONDENT: CHAIRMAN-CUM-MANAGING DIRECTOR.NEW INDIA ASSURANCE CO. LTD.

DATE OF JUDGMENT17/01/1992

BENCH: RAMASWAMY, K. BENCH: RAMASWAMY, K. AHMADI, A.M. (J)

CITATION:  1992 AIR 1072            1992 SCR  (1) 220  1992 SCC  (2)  36        JT 1992 (1)   188  1992 SCALE  (1)40

ACT:      Orissa  Insurance Co-operative Society Limited  Service Rules.      Rule   5-Whether  arbitrary,  unreasonable  and   void- declared to be recast.      Statutory Interpretation.      Presumption   in   favour   of   constitutionality   of legislation-Interpretation favouring constitutionality to be accepted.

HEADNOTE:      While  the appellant was working as Divisional  Manager at  Delhi, the general insurance business  was  nationalised and its management was taken over by the Central  Government under  General Insurance (Emergency  Provisions)  Ordinance, 1971 which was replaced by Act 57 of 1972 and vested in  the Custodian of the New India Assurance Co. Ltd. the management of Orissa Insurance Co-operative Society Ltd.      By  operation of Section 7 of the Act the  services  of the  appellant and others stood transferred and vested  with the custodian.      The  appellant  was kept under suspension  from  August 9,1973  pending investigation into charges of  embezzlement. Explanation  was  called  for on  October  16,1973  and  the appellant  submitted  his reply on December 7,  1974,  While dropping  the  proceeding, the appellant was served  with  a termination  order  dated  april  17,  1975  issued  by  the respondent.      The  appellant  challenged  the  aforesaid  termination order  in  a  writ petition in Delhi High  Court  which  was dismissed  by  a Single Judge on November 11,1983  and  this judgment  was  confirmed by the division Bench in  a  Letter Patent Appeal.      In the appeal to this Court it was contended on  behalf of the                                                        221 appellant placing reliance on the majority view in D.T.C  v. D.T.C Mazdoor Congress & Ors. judgment Today 1990(3) SC  725 that  Rule  5  of the  Orissa  Insurance  Co-operative  Ltd. services  Rules  is  ultra  vires  of  Article  14  of   the Constitution.  On behalf of the respondent it was  contended

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that  unlike Rule 9 involved in D.T.C’s case, Rule 5 in  the instant  case  provided guidelines, and that  the  Board  of Directors  had  to  take a decision,  whether  the  need  to continue  the  employee’s service subsists  which  would  be based on relevant material and thus there would be objective consideration  before taking a decision, not only  regarding the  need to continue the post but also the services of  the Officer or the employee, and if so construed the rule is not ultra vires of article 14.      Allowing the appeal, this Court,      HELD:  Rule  5  of the  Orissa  Insurance  Co-operative Society Ltd. is capable of the interpretation that the Board of  management may form an  objective opinion, on the  basis of material, that the post which the officer or the employee is occupying is no longer in need and that the post would be abolished. This would be a policy decision depending on  the exigencies. Once the Board reaches such a decision to abolish the post, in consequence the service of the officer/employee occupying the post could be terminated. Viewed in that light the  said  rule does not become arbitrary,  unreasonable  or void  offending Article 14 and therefore the rule is  valid. [225G-226 B]     There is a presumption in favour of constitutionality of a legislation or statutory rule unless ex facie it  violates the  fundamental  rights guaranteed under Part  III  of  the constitution.  If  the provisions of a law or  the  rule  is construed in such a way as would make it consistent with the Constitution  and  another interpretation would  render  the provision or the rule unconstitutional, the Court would lean in favour of the former construction. [225 E]      It  is  clear in the instant case, that  the  Board  of Management  did not abolish the post but put an end  to  the service   of  the  appellant,  obviously  due  to  loss   of confidence  as his honesty and integrity  became  suspicious and his continuance in service was felt inexpedient and  not in the interest of the business of the respondents. But rule 8 was available for taking action for misconduct but was not availed.  Therefore, the order terminating the  services  of the appellant is illegal. [226 C]                                                        222      Normally the appellant is entitled to reinstatement but the   ends  of  justice  would  be  met  by  directing   the respondents to pay him Rs. 1,00,000 as compensation, instead of  reinstatement  and further continuance in  service.  The compensation  awarded  would be staggered between  the  year 1973  till date for the purpose of income tax and given  the appropriate relief. [226D-E]      March  of service jurisprudence necessitates  that  the respondent  recast Rule 5 in tune with the Constitution  and the law. [226-E]

JUDGMENT:      CIVIL  APPELLATE JURISDICTION: Civil Appeal  No.655  of 1986.      From  the  Judgment and Order dated  23.4.1984  of  the Delhi High Court in Letters Patent Appeal No.25 of 1984.      M.K.Ramamurthy,  Ms S. Pappuh, B.P.Singh,  Rishi  Kesh, Raj  Birbal,  Sanjeev  Sabharwal,  B.R.Sabharwal  and   M.M. Kashyap for the appearing parties.      S.S.Harlakha appeared in person.      S.S.Onkarmal appeared in person for the Intervener.      The Judgment of the Court was Delivered by      K.  Ramaswamy, J. In this appeal by special  leave,  by

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way of additional grounds with leave, the appellant impugnes Rule  5  of the Orissa Insurance Co-operative  Society  Ltd. Service  Rules (for short "the Rules") as   unconstitutional and void offending Article 14 of the Constitution of  India. The material facts relevant to the point are that while  the appellant  was working as Divisional Manager at  Delhi,  the general   insurance  business  was  nationalised   and   its management  was taken over by the Central  Government  under General  Insurance  (Emergency Provisions)  Ordinance,  1971 replaced by Act 57 of 1972 (for short "the Act") and  vested in  the custodian of the New India Assurance Co.  Ltd.,  the management of Orissa Insurance Co-operative Society Ltd.  By operation  of s.7 of the Act, the services of the  appellant and others stood transferred and vested with the  custodian. Under  the  Act,  the Board of Directors  was  empowered  to terminate  the  service  of  the  officer/employee  of   the insurer. The appellant was kept under suspension from August 9,1973   pending   investigation  into   the   embezzlement, Explanation was called for on October 16, 1973. in  response thereto  the  appellant submitted his reply on  december  7, 1974. While dropping the                                                        223 proceeding, the appellant was served with termination  order dated April 17,1975 issued by the respondent. The  appellant challenged  it in a writ petition in Delhi High Court  which was dismissed by a learned Single Judge on November 11, 1983 and  was  confirmed by the Division Bench in  Letter  Patent Appeal No.351/1984 dated April 23, 1984.      Section  7  of the Act provides that every  whole  time officer or other employee of an existing insurer employed in connection with his General Insurance business,  immediately before  the appointed day, shall become an  officer/employee of the Indian Insurance Co. in which the undertaking of  the insurer  to  which the service of the  officer  relates  has vested  and  would  hold his office on the  same  terms  and conditions and with the same rights to pension, gratuity and other matters as would have been admissible to him, if there had been no such vesting and shall continue to do so unless and  until his appointment is terminated. Section  16(1)  in Chapter  V  provides  that if the Central Govt.  is  of  the opinion  that for the more efficient carrying on of  General Insurance  business,  it is necessary to do so,  it  may  by notification, frame one or more schemes providing for all or any  of  the following matter; (e)  the  rationalisation  or revision  of  pay-scales and other terms and  conditions  of service of officers and other employees wherever  necessary. Pursuant  thereto,  the central Govt. framed the  New  India Assurance  Co.  Ltd  Merger Scheme, 1973  with  effect  from December 31, 1973. Thereunder by Rule 3, the undertaking was transferred  to  the respondent; under Rule 5  the  existing whole time officer etc. became the officer of the transferee company  (New Indian Assurance Co. Ltd) and could  hold  his office  on the same terms and conditions as would have  been admissible  to  him if there had been no such  transfer,  as referred  to in paragraph 3. He shall continue to  remain an officer  unless and until his employment, in the  transferee company  is terminated or the terms and conditions are  duly altered  by  any  other  scheme framed  under  the  Act.  By notification  dated  April 29, 1976 the Central  Govt.  also framed    the   scheme   called   the   General    Insurance (Rationalisation  of  pay-scales  and  other  Conditions  of Service  of Development Step) Scheme, 1976 which  came  into force on May 1, 1976, the details of which are not  material for the reason that service of the appellant was  terminated ,  in terms of the existing rule 5 of the Rules. Suffice  to

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state that pursuant to the nationalisation under the Act and Scheme, the appellant became the officer of the respondent.      Rule 5 read thus:      Termination of Service:                                                        224                    "An   employee   whether   permanent   or          temporary  shall  not  leave  or  discontinue   his          service in the Society without first giving 30 days          notice in writing of his intention to do so, to the          Principal  Officer,  Failure to do so  will  entail          forfeiture of the pay of the month. In the event of          the  Society  not having any further  need  of  any          employee’s service whether permanent or  temporary,          which shall be decided by the Board, the  Principal          Officer  shall give 30 days’ notice in writing  for          termination  of his service or in lieu thereof  pay          such employee a sum equivalent to his one month pay          including  allowance  upto the termination  of  the          period  of notice by way of  compensation  provided          that nothing in these rules shall affect the rights          of the society to dismiss an employee under Rule  8          for misconduct etc. without any notice or salary in          lieu  of notice, in the manner prescribed in  these          rules.                    An employee shall ordinarily retire  from          the  Society’s services on completion of  his  55th          year  unless the Board reserves to continue him  in          office  of  such period as may be  determined  from          time to time."      It is thus manifest that an employee, whether permanent or  temporary,  has  an option to leave  or  discontinue  by giving 30 days’ notice in writing of his intention to do so. His  failure thereof shall entail forfeiture of the  pay  of the month. The employee ordinarily would be superannuated on completion  of his 55th year unless the Board continues  him for  an  extended period as may be determined from  time  to time.  Equally  in the event of the Society not  having  any further need of the employee’s service, whether permanent or temporary,  which  should  be  decided  by  the  Board,  the Principal Officer shall give 30 days’ notice in writing  for termination  of  his  service or in lieu  thereof,  pay  one month’s  salary  including  allowances upto  the  period  of termination. The respondent also has the right to dismiss an employee,  under  Rule  8,  for  misconduct  in  the  manner prescribed  in  the Rules. Admittedly,  though  action   was initiated   against  the  appellant  for  the   charges   of embezzlement  etc.  which are misconduct, the  charges  were dropped.  Taking  aid of Rule 5 and  without  conducting  an enquiry  or giving an opportunity, the  appellant’s  service was  terminated by tendering one month’s salary in  lieu  of notice  and also a direction to pay all the allowances  upto that date including the period of his suspension. It is  not necessary  to  go into the grounds taken in the  High  Court assailing  the invalidity of the termination order  as  they are  not  pressed  before us. Sri  Ramamurthy,  the  learned Senior  counsel  for the appellant placing reliance  on  the ratio  of  the  majority view in D.T.C.  v.  D.T.C   Mazdoor Congress & Ors.,                                                        225 Judgment  today  (1990) 3 SC 725 contended that  Rule  5  is ultra vires of Article 14 of the Constitution. Smt. Shyamala Pappu,  the  learned  Senior  counsel  for  the   respondent contended that unlike Rule 9 in D.T.C’s case Rule 5 provides guidelines. The Board of Directors have to take a  decision, whether the need to continue the employee’s service subsists

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which  would  be based on the  relevant  material.  Thereby, there  would  be  objective consideration  before  taking  a decision,  not only regarding the need to continue the  post but also the services of the officer or the employee. Though the rule does not provide for prior notice,  post-decisional opportunity  would  be read into the rule. If so  read,  the rule is not ultra vires Article 14. In our view the ratio in D.T.C.’s  case  has no application. Rule 9 of the  rules  of Delhi  Transport Corporation Service Regulation gives  naked power  to terminate the services of a permanent employee  by giving one month’s notice or pay in lieu thereof. It was not the  contention  therein, that the rule was capable  of  two constructions. It is settled law that there is a presumption of  constitutionality  of the rule. The court ought  not  to interpret  the  statutory provisions,  unless  compelled  by their  language,  in  such a manner  as  would  involve  its unconstitutionality,  Since  the  legislature  of  the  rule making  authority is presumed to enact a law which does  not contravene   or  violate  the   constitutional   provisions. Therefore,   there   is   a   presumption   in   favour   of constitutionality of a legislation or statutory rule  unless ex facie it violates the fundamental rights guaranteed under Part  III of the constitution. If the provisions of  law  or the  rule  is  construed  in such a way  as  would  make  it consistent with the constitution and another  interpretation would render the provision or the rule unconstitutional, the court  would lean in favour of the former  construction.  In view  of this settled legal position, the  question  emerges whether  the  language  in Rule 5 would  be  capable  to  be construed  consistent  with the fundamental rights  in  Part III.  As  stated earlier, the phrase "in the  event  of  the Society  not  having  any further  need  of  any  employee’s service  whether  permanent  or temporary   which  shall  be decided by the Board" is susceptible of two interpretations. The  one interpretation put up by Sri Ramamurty is that  the Board may unilaterally and arbitrarily decide that there  is no need for the services of a particular employee, in  given facts and circumstances, though the post which the  employee is  occupying  may continue and would be put to  an  end  by giving  one month’s notice or pay in lieu thereof.  In  that event the rule per se is arbitrary offending Article 14. The other  view  capable  to  be  construed  from  the  language employed  would be that the Board of Management may form  an objective  opinion, on the basis of the material,  that  the post  which  the  officer or the employee  is  occupying  no longer  is  in need. Thereby, the post would  be  abolished. This would be a policy decision depending on the exigencies. In  consequences  the  service of the  employee  also  would become                                                        226 redundant  or  surplus. In that event his service  would  no longer  be needed. The officer or employee may be  permanent or temporary but the absence of the need for the continuance of the post would necessitate to terminate the service of an employee or officer. It must not be a pretext or a rouse  to get  rid of the service of an inconvenient officer or of  an employee. If that be so. it would become colourable exercise of  power  and would be liable to be  quashed  as  offending Article 14. Once the Board reaches a decision to abolish the post,  in consequence the service of the  officer/  employee occupying  couched  in  Rule  5  also  is  capable  of  that interpretation.  In  that light we are of the  opinion  that Rule  5  does  not become arbitrary.  unreasonable  or  void offending Article 14. Accordingly, we hold that the rule  is valid.

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    But  from  the  facts, it is clear that  the  Board  of Management  did not abolish the post but put an  end to  the service   of  the  appellant.  Obviously  due  to  loss   of confidence  as his honesty and integrity  became  suspicious and his continuance in service was felt inexpedient and  not in the interest of the business of the respondents. But Rule 8 was available for taking action for misconduct but was not availed.  Therefore,  the  impugned  order  terminating  the services  of  the appellant is illegal. What  would  be  the consequence?   Normally   the  appellant  is   entitled   to reinstatement  but in our view the ends of justice would  be met  by directing the respondent to pay him Rs. 1,00,000  as compensation,   instead   of   reinstatement   and   further continuance  in service. The compensation awarded  would  be staggered between the year 1973 till date for the purpose of income tax and given the appropriate relief. In this view it is not necessary to deal with other contentions or decisions cited  across  the bar. Before parting with the case  it  is necessary  to  mention that march of  service  jurisprudence necessitates the respondent to recast the rules in tune with the  constitution  and the law. The appeal  is  allowed  but without cost. The intervention application filed by Sri S.S. Onkarmal Harlalka is dismissed. S.B.                                          Appeal allowed.                                                        227