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CASE NO.: Appeal (civil)  851 of 2005

PETITIONER: M/S Goa Shipyard Ltd.

RESPONDENT: Babu Thomas

DATE OF JUDGMENT: 30/05/2007

BENCH: H.K. SEMA & R.V. RAVEENDRAN

JUDGMENT: JUDGMENT

H.K.SEMA,J.

               The challenge in this appeal is to the order of 25th  November, 2003 passed by the Division Bench of the High  Court of Bombay at Goa in Civil Writ Petition No. 414 of 1997  whereby the order of dismissal of the respondent dated  21.1.1997 dismissing him from service passed by the  Chairman and Managing Director and also the order of the  Appellate Authority (Board) of 27.9.1997 confirming the order  of dismissal were set aside. This appeal is preferred by M/s  Goa Shipyard Ltd.         Few facts may be noted. 2.      The respondent was appointed by Chairman and  Managing Director as Joint Manager (Security) by an order  dated 18.1.1991.  On 26.8.1991 he was given additional  charge as officiating Manager-Personnel and Administration.   It is stated that on 14.9.1994 the respondent was caught red  handed by C.I.D./Crime Branch of Goa Police while  demanding illegal gratification of Rs.20,000/- from one Shri  Chennaiah, a cleaning labour contractor employed by the  appellant.   He was placed under suspension by an order  dated 15.9.1994 in contemplation of the disciplinary  proceedings.  On 15.12.1994, 13 counts of charges were  levelled against the respondent namely (i) demanding and  collecting illegal gratification, (ii) accepting bribe of illegal  gratification for recruitment in Petitioner company, (iii)  withholding authorised payments for extorting money or bribe,  (iv) financial loss caused to the company by misleading the  Management by intentionally furnishing wrong advice; (v)  misuse of contract employee; (vi) violation of company’s policy  on recruitment; (vii) creating of new posts and converting  security assistants as Personnel Administration Assistants  without sanction of the appropriate authority; (viii) attempt to  extort money from contractors; (ix) prejudicing the company  and its contractors by influencing a wage agreement; (x)(a)  financial irregularities, improprieties and fraud and non  accounting of company’s funds; (x)(b) wrongful appropriation  of money from the imprest account of Shri M.R. Furtado; (x)(c)  non-accounting of appropriation of advance drawn by Shri  M.R. Furtado; (xi) possession of pornographic materials; (xii)  misuse of company’s car; and (xiii) unauthorized telephone  bills of office and residential phones.

3.      On 4.1.1995 one Shri N.P. Kumar was appointed as an

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Inquiry Officer.  The respondent in the interregnum filed Writ  Petition No.137 of 1995 before the High Court of Bombay at  Goa challenging the inquiry proceedings on the grounds that  relevant documents were not furnished to him, legal  assistance was not provided and subsistence allowance was  not correctly paid.  The High Court by its interim order dated  2.5.1995 granted interim stay of inquiry proceedings.  By  another order dated 10.7.1995 the High Court vacated the  interim stay and allowed the disciplinary authority to proceed  in accordance with principles of natural justice and in  accordance with law and directed the appellant to furnish  copies of all relevant documents to the respondent.  The Writ  Petition was disposed of on 26.7.1995 directing the appellant  to complete the disciplinary proceedings within four months  and the respondent was also allowed to be represented by a  lawyer of his choice during the disciplinary proceedings.   In  the interregnum Cmdr. S.K.Mutreja was appointed as an  Inquiry Officer in place of Shri N.P. Kumar, who has since  resigned.

4.      The conduct and discipline of all officers of the appellant  were governed by the Goa Shipyard Officers’ Conduct,  Discipline and Appeal Rules, 1979 (’CDA Rules’ for short). On  15.12.1995, an amendment to the CDA Rules proposing  substitution of the Schedule to the said Rules, was circulated  to the Board of Directors, vide Circular Board Resolution No.  13 of 1995 for approval by circulation. The purpose of the  proposed amendment was to redesignate the Disciplinary,  Appellate and Reviewing Authorities for imposing minor and  major penalties. The said amendment to CDA Rules were  approved by circulation, by the Board of Directors. On  29.3.1996 CMD issued a Circular notifying all employees, that  the amendment to the CDA Rules were approved and that the  amendments came into force with effect from 08.01.1996. The  said amendment inter alia substituted the General  Manager/Functional Director as Disciplinary Authority in  place of ’Board’ and CMD as Appellate Authority in place of  ’Board’ for imposing major penalties in the cases of officers  (upto and inclusive of Managers). In regard to grades above  Deputy General Manager, CMD was designated as the  Disciplinary Authority and the Board was the Appellate as well  as Reviewing Authority.   We extract below the relevant portion  of the Schedule to the CDA Rules before and after amendment:

Before Amendment :  

Grade of Officer Appointing  Authority Disciplinary Authority  Appellate  Authority Reviewing  Authority  Superintendents  to General  Manager  Board Reduction to a  lower stage in  the time scale  or to lower  grade/ post

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Other Major  Penalties

MD

Board Board

Board  Board

Board

Note : For the purpose of this Schedule, ’Board’ means a Committee of Directors appointed  by the Board of Directors

After amendment :  

Grade of Officer Appointing  Authority Disciplinary Authority  Appellate  Authority Reviewing  Authority  All Officers up  to  and  inclusive of  Manager Chairman &  Managing  Director General Manager/  Functional Director Chairman &  Managing  Director Board

Note : for the purpose of this Schedule, ’Board’ means a Committee of Directors  appointed by the Board of Directors \005\005.

5.              The Inquiry Officer completed the inquiry and  submitted its report on 19.9.1996 holding that the charges No.  (i), (ii), (v), (vi). (vii), (x)(a), (x)(c), (xi), (xii) and (xiii) were proved  against the respondent and charges (iii), (iv), (viii) and (ix) were   withdrawn by the Management and further holding that  charge (x)(b) was not proved.  A Show Cause Notice dated

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5.10.1996 was issued to the respondent as to why the Inquiry  Report and findings should not be accepted.  After examining  the reply dated 31.10.1996 to the show cause notice the  respondent was dismissed from service by an order dated  21.01.1997 passed by the Chairman-cum-Managing Director.   The respondent’s appeal before the Appellate Authority (Board)  was rejected by an order dated 27.09.1997.  The Appellate  Authority, however, held that charges no.(ii), (v), (x)(a), (x)(b),  (xi) and (xiii) were not fully or entirely proved and confirmed  the dismissal on charges (i), (vi), (vii), (x)(c) and (xii).

6.      Aggrieved thereby the respondent preferred Writ Petition  No. 414 of 1997 before the High Court of Bombay at Goa.  Many contentions were raised before the High Court.   However, the High Court disposed of the Writ Petition on a  preliminary contention. It held that amendment to CDA Rules  by Board Resolution circulated on 15.12.1995 and notified on  29.3.1996 did not come into force at all, even though the  circular dated 29.3.1996 under which the amendment was  notified stated that the amendments will come into force with  effect from 8.1.1996. The High Court held that Rule 41 of CDA  Rules provided that any amendment will take effect from the  date stated therein and therefore, the date of coming into  effect should be contained in the amendment itself and not in  a circular notifying the amendment. The High Court held that  the amendment approved vide board resolution notified on  29.3.1996 did not mention the date from which the  amendment would be effective and therefore the amendment  did not come into effect. The High Court held that as per the  CDA Rules (unamended), the Board was the Disciplinary  Authority and therefore the dismissal order by a lower  authority namely CMD was without authority.  On this ground  alone, the order of dismissal passed by the CMD on 21.1.1997  and the Appellate Authority’s order dated 27.9.1997 rejecting  the appeal were set aside by the High Court by the impugned  order. The said order is challenged in this appeal by special  leave. 7.      We have heard Mr. Surendra Desai, learned senior  counsel for the appellant and Mr. L. Nageswara Rao, learned  senior counsel for the respondent at length.

8.      The whole controversy revolves around the enforcement  and effective date of the Amended CDA Rules as provided  under Rule 41 of CDA Rules, relating to amendment of Rules.   It reads:                 "Amendment:

The Board may amend, modify or add to these  rules, from time to time, and all such  amendments, modifications or additions shall  take effect from the date stated herein."  

                                       (emphasis supplied)

The High Court was of the view that since the date of  enforcement of amended Rules were not stated in the  amendment Rules as provided under Rule 41, it cannot be  said that the amendment to the CDA Rules came into force  from 08.01.1996. The High Court held :  

"The question, however, is whether the Rules  could be said to have been amended and come  into force.  As already noted earlier, Rule 41  specifically and expressly provides for

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amendment in the Rules.  Under the said  provision, the Board could amend, modify or  add the Rules, but such amendment would  take effect "from the date stated therein".  In  other words, the Rules would get amended and  such amendment would be effective from the  date mentioned in such amendment.  So far as  the amendment is concerned, nothing is stated  in the amendment.  Exh.R-4 recites:  "Amendments to Goa Shipyard Officers’  Conduct, Discipline and Appeal Rules, 1979".   It also states that those amendments would  come into force from 8th January, 1996.  Such  a communications (CMD/34/96), in our  opinion, however, cannot be said to be  amendment in the Rules covered by Rule 41 of  the Rules.  Obviously, therefore, when the  amendments were made in the Rules, no  provisions had been made as to when they will  come into force and with effect from which  date, they will be implemented.  Reliance on  Section 289 of the Companies Act, 1956 does  not help the respondent.  We would have  considered the said submission, but in view of  the specific provision in rule 41 of the rules  which expressly lays down the date on which  the amendment would come into force, the  learned counsel for the petitioner, in our  opinion, is right in contending that the  amendment would not come into operation till  the procedure laid down in Rule 41 is followed  and the date is specified.  Apart from that, no  resolution has also been placed on record as to  when such a decision was taken and as to the  date from which the amendment would  become effective.  The so-called decision dated  18th March, 1998 produced at the time of  hearing is subsequent to the order of dismissal  passed dated 21st January, 1997 and the same  cannot salvage the situation.   The order of  dismissal passed by the Chairman-cum- Managing Director, hence deserves to be set  aside as also the order passed in Appeal by the  Board.  If the initial order is invalid, its  invalidity cannot be cured by ratification,  approval or confirmation by any authority (vide  State of U.P.  v.  Mohd. Nooh, AIR 1958 SC 86;  Farid Ahmed  v.  Ahmedabad Municipal  Corporation, AIR 1976 SC 2095, Marathawada  University  v.  Sheshrao, AIR 1989 SC 1582).         

9.              Learned counsel for the appellant contended that  the views taken by the High Court were clearly erroneous in  law. He submitted that Resolution by circulation was  recognized and permitted by Section 289 of the Companies  Act, which reads:-    

"289. Passing of resolutions by circulation.- No  resolution shall be deemed to have been duly  passed by the Board or by a committee thereof by  circulation, unless the resolution has been  circulated in draft, together with the necessary  papers, if any, to all the directors, or to all the  members of the committee, then in India (not

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being less in number than the quorum fixed for a  meeting of the Board or committee, as the case  may be), and to all other directors or members at  their usual address in India, and has been  approved by such of the directors as are then in  India, or by a majority of such of them, as are  entitled to vote on the resolution."  

The appellant contends that the draft of the amendment to the  CDA Rules was considered in the meeting of the Board of  Directors on 28.9.1995 as item No.A-15 but the same was  deferred.  It was again considered at the Board meeting held  on 2.12.1995 as item No.A-10 and it was decided to send the  agenda (containing the draft of the amendment to the CDA  Rules) by circulation to Directors for their approval.  Accordingly the circular resolution was circulated and  approved by the six Directors (Members of Board of Directors)  on 15.12.1995, 5.1.1996, 5.1.1996, 8.1.1996, 12.1.1996 and  1.2.1996. As the majority approved it by 8.1.1996, it was given  effect from 8.1.1996. The approved circular Resolution  No.13/1995 was again placed before the Board of Directors on  21-3-1996 for ratification as item No.A-10 and the Board of  Directors duly ratified the Circular Board Resolution No.13 of  1995 amending the CDA Rules.  

10.             Counsel for the appellant has also invited our  attention to the resolution of Board of Directors held on  18.3.1998, which further ratified and classified that the  Circular Board Resolution No.13 of 1995 dated 15.12.1995  came into effect on 08.01.1996 on which date the same was  approved by the majority of directors as required under  Section 289 of the Act. The said resolution is extracted below : "A-11- DISMISSAL OF MAJ. BABU THOMAS JT. MANAGER (S&A)  WRIT PETITION CHALLENGING ORDER OF DISMISSAL IN THE  HIGH COURT OF JUDICATURE OF MUMBAI, PANAJI BENCH -  AMENDMENT TO CDA RULES.

37.     CMD apprised the Board in the matter and drew the attention of  the Board to Rule 41 of Goa Shipyard Officers’ Conduct, Discipline &  Appeal Rules, 1979, which provides and empowers the Board to amend,  modify or add to the said 1979 Rules, from time to time and further  provides that all such amendments, modifications or additions shall take  effect from the date stated therein. The CMD further pointed out that no  date had been specified as required under Rule 41 in the amendments  carried out to the said Rules vide Circular Board Resolution No.13 of  1995 dated 15.12.1995.

38.     The Board noted that the Circular Board Resolution No.13 of 1995  was circulated under Section 289 of the Companies Act, 1956, in view of  urgency to amend the 1979 Rules due to I) changes in grades taken place  since then, ii) on account of administrative difficulties faced in  implementation of the existing Rules, and iii) Government instructions  received by the Company from time to time to amend the Rules, etc. The  said amendments were intended to be enforced immediately and after it  were approved as required under the Companies Act, 1956. No specific  date had been mentioned in the Resolution, since the said Resolution was  intended to take effect from the date the same was approved as required  under Section 289 of the Companies Act, 1956. The amendment had been  brought into force and were being applied from 08.01.1996, on which date  the same were approved by the majority of the Directors as required under  Section 289 of the Companies Act, 1956 and on which date, in normal  course, any such Resolution under the Companies Act would have come  into force. The Board noted that the aforesaid Circular Resolution duly  signed and approved by the Directors was received by the Company on  various dates from 15.12.1995 and the majority of the Directors had

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forwarded the Resolution by 08.01.1996 to the Company. The CMD also  drew the attention of the Board regarding the objections taken by Maj.  Babu Thomas (dismissed employee) in Writ Petition No.414 of 1997,  pending disposal in the High Court of Judicature at Mumbai, Panaji  Bench, wherein he has challenged his dismissal on the ground amongst  others, that the amendments to 1979 Rules have not come into effect since  no date is specified in the amendments resolution.

39.     CMD brought out to the notice of the Board that the Board at its  meeting held on 28.11.1997, had noted the report of the Appellate  Authority appointed by the Board confirming the decision of Disciplinary  Authority of dismissing Maj. Babu Thomas from the services of the  Company w.e.f. 21.01.1976 for serious and grave misconduct committed  by him under the CDA Rules. After detailed discussion, the Board,  therefore, desired to clarify the position by passing the following  resolution:-

       "RESOLVED THAT the Circular Board Resolution No.13 of 1995  dated 15.12.1995 amending the Goa Shipyard Officers’ Conduct,  Disciplines and Appeal Rules, 1979 shall take effect from the date the  same has been approved by the majority of the Directors of the Company,  in terms of Section 289 of the Companies Act, 1956".

11.             From the facts as adumbrated above it clearly  emerges that having regard to Board’s resolution dated  18.3.1998, it should be taken that the amendment of CDA  Rules by Circular Resolution No.13/1995, itself provided that  it would take effect from 8.1.1996 (the date on which the same  were approved by the majority of Directors).  Therefore, Rule  41 of the CDA Rules that the amendment will come into effect  from the date stated therein is fully complied with. The  question whether the Board of Directors of a company could  subsequently ratify an invalid act and validate it  retrospectively is no more res integra. The question has been  considered by a three Judge Bench of this Court in  Maharashtra State Mining Corpn Vs. Sunil (2006) 5 SCC 96.   In that case the respondent, an employee of the Corporation  was dismissed by the Managing Director preceded by an  inquiry.  A Writ Petition was filed challenging the dismissal  order on the ground that the Managing Director of the  Corporation was incompetent to pass such order.  During the  pendency of the Writ Petition, the Board of Directors of the  Corporation passed a Resolution ratifying the impugned action  of the Managing Director and also empowering him to take  decisions in respect of the officers and staff in the grade of pay  the maximum of which did not exceed Rs.4700/- p.m.  The  Managing Director who dismissed the employee had earlier the  power only in respect of those posts where the maximum pay  did not exceed Rs.1800/- p.m.  The employee at the relevant  time was drawing more than Rs.1800/- p.m. and therefore,  the Managing Director was incompetent to dismiss the  employee.  The High Court set aside the order of termination  on the ground that the invalid act cannot be subsequently  ratified by the Board of Directors.  This Court after referring to  various earlier decisions set aside the order of the High Court.   This Court held as under:  

"The High Court was right when it held that an  act by a legally incompetent authority is  invalid. But it was entirely wrong in holding  that such an invalid act cannot be  subsequently ’rectified’ by ratification of the  competent authority. Ratification by definition  means the making valid of an act already

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done. The principle is derived from the Latin  maxim ’Ratihabitio mandato aequiparatur’  namely ’ a subsequent ratification of an act is  equivalent to a prior authority to perform such  act’. Therefore ratification assumes an invalid  act which is retrospectively validated".

                                       xxxxxx

                        "In the present case, the Managing Director’s  order dismissing the respondent from the  service was admittedly ratified by the Board of  Directors on 20th February 1991, and the  Board of Directors unquestionably had the  power to terminate the services of the  respondent. On the basis of the authorities  noted, it must follow that since the order of the  Managing Director had been ratified by the  Board of Directors such ratification related  back to the date of the order and validated it".                      

We, therefore, reject the contention that the order of dismissal  passed by CMD is invalid for want of authority.  12.     Mr. Rao, learned senior counsel for the respondent,  referred to the decision of this Court in the case of State of  Goa   vs.   Babu Thomas (2005) 8 SCC 130, in which one of  us was a Member of the Bench (Sema,J) particularly the  observation made in paragraphs 4,8 and 9 of the judgment.  In  our view, the judgment rendered in the aforesaid case relating  to sanction for prosecution under section 19 of Prevention of  Corruption Act, 1988 would be of no assistance to decide the  issue on hand.   13.             Mr. Rao next referred to the amended CDA rules  wherein it has been provided that for all officers up to and  inclusive of Manager, the Disciplinary Authority who can  impose major penalties is the General Manager/Functional  Director and the Appellate Authority is the Chairman &  Managing Director. According to Mr. Rao, since the order of  dismissal has been issued by the Chairman & Managing  Director who is an Appellate Authority, the respondent has  been deprived of his right of appeal to the Chairman &  Managing Director.  According to him, under the amended  CDA rules the appellate authority is the Chairman &  Managing Director but as the major penalty has been imposed  by the Chairman & Managing Director, he cannot act as an  Appellate Authority and therefore the respondent has lost one  form of remedy available to him.   We are unable to  countenance to this submission. The respondent was not  denied the right of appeal. Undisputedly, the respondent filed  an appeal before the Board of Directors, as the order of  dismissal was passed by the CMD, and the Board of Directors  considered his appeal and by a detailed order dismissed the  appeal on 27.9.1997. In fact, the Board of Directors  independently considered the appeal and while dismissing the  appeal held that charges (ii), (v), (x)(a), (x)(b), (xi) and (xiii) are  not fully or entirely proved and confirmed the dismissal order  on charges (i), (vi), (vii), (x)(c) and (xii).  The appeal was  considered independently by the Appellate authority and a  detailed order passed after application of mind.  In such  circumstances, we are clearly of the view that no prejudice  whatsoever has been caused to the respondent as he availed

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an opportunity of an appeal before the Board of Directors as  an Appellate Authority.

14.     Mr. Rao invited our attention to the decision of this Court  rendered in Surjit Ghosh   vs.  Chairman & Managing  Director (1995) 2 SCC 474, where this Court observed as  under:- "However, when an appeal is provided to the  higher authority concerned against the order  of the disciplinary authority or of a lower  authority and the higher authority passes an  order of punishment, the employee concerned  is deprived of the remedy of appeal which is a  substantive right given to him by the  Rules/Regulations. An employee cannot be  deprived of his substantive right. What is  further, when there is a provision of appeal  against the order of the disciplinary authority  and when the appellate or the higher authority  against whose order there is no appeal,  exercises the powers of the disciplinary  authority in a given case, it results in  discrimination against the employee  concerned".   

In our view, this decision would be of no help to the  respondent’s case on facts.  As already noticed in the present  case, the respondent in fact, had availed the remedy of appeal   and filed the appeal before the Board of Directors. That apart,  the decision in Surjit Ghosh (supra) has been distinguished  by this Court in Balbir Chand  vs.  Food Corporation of  India Ltd. (1997) 3 SCC 371.  It was pointed out as under:  "The learned Counsel for the petitioner has  raised the contention that since the petitioner  was required to be dismissed by the  disciplinary authority, namely, Zonal Manager,  who alone is competent to remove him, the  order of dismissal passed by the Managing  Director is bad in law. In support thereof, he  placed reliance on a judgment of this Court in  Surjit Ghosh v. Chairman and Managing  Director, United Commercial Bank (1995) 2  SCC 474.   It is an admitted position that as a  joint enquiry was conducted against all the  delinquent officials, the highest in the  hierarchy of competent authority who could  take disciplinary action against the  delinquents was none other than the Managing  Director of the Corporation. In normal  circumstances the Managing Director being  the appellate authority should not pass the  order of punishment so as to enable the  delinquent employee to avail of right of appeal.  It is now a well settled legal position that an  authority lower than the appointing authority  cannot take any decision in the matter of  disciplinary action. But there is no prohibition  in law that the higher authority should not  take decision or impose the penalty as the  primary authority in the matter of disciplinary  action. On that basis, it cannot be said that  there will be discrimination violating Article 14  of the Constitution or causing material  prejudice. In the judgment relied on by the

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counsel, it would appear that in the Rules,  officer lower in hierarchy was the disciplinary  authority but the appellate authority had  passed the order removing the officer from  service. Thereby, the appellate remedy  provided under the Rules was denied. In those  circumstances, this Court opined that it  caused prejudice to the delinquent as he would  have otherwise availed of the appellate remedy  and his right to consider his case by an  appellate authority on question of fact was not  available. But it cannot be laid as a rule of law  that in all circumstances the higher authority  should consider and decide the case imposing  penalty as a primary authority under the  Rules, In this case, a right of second  appeal/revision also was provided to the  Board. In fact, appeal was preferred to the  Board. The Board elaborately considered the  matter through the Chairman. It is not  violative of Article 14 of the Constitution". [Emphasis supplied]

15.   The High Court had allowed the respondents’ writ  petition by upholding the preliminary contention that the CMD  did not have the authority and jurisdiction to pass the order of  dismissal. It did not consider the several contentions raised by  the respondent on merits. In the view that we have taken, the  decision of the High Court dated 25.11.2003 on the  preliminary contention cannot be sustained. We, therefore, set  aside the Order of the High Court dated 25.11.2003 which  allowed Writ Petition No. 414 of 1997 on a preliminary ground.  Consequently the writ petition shall stand restored to the file  of the High Court. The High Court shall now consider the  other contentions raised by the respondent-writ petitioner  other than the issue answered by this Court.  

16.             This Court on 23.8.2004 stayed the operation of the  judgment of the High Court subject to the appellant making  payment of the amount equivalent to subsistence allowance  from the date of the judgment of the High Court within four  weeks.  This order was passed keeping in view that the order  of dismissal was set aside by the High Court.  As we have set  aside the order of the High Court, the order of   dismissal  dated 21.1.1997 confirmed by Appellate Authority’s order  dated 27.9.1997 stands restored subject to the final decision  of the writ petition.  The respondent-writ petitioner shall not  be entitled to any subsistence allowance from today till the  writ petition is finally disposed of by the High Court in  accordance with law. 17.     The appeal is allowed accordingly. Parties to bear their  respective costs.