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CASE NO.: Appeal (civil)  2438 of 2008

PETITIONER: National Insurance Co. Ltd

RESPONDENT: General Insurance Dev. Officers Asson. And Ors

DATE OF JUDGMENT: 03/04/2008

BENCH: Dr. ARIJIT PASAYAT & P. SATHASIVAM

JUDGMENT: J U D G M E N T REPORTABLE

CIVIL APPEAL NO. 2438      OF 2008    (Arising out of SLP (C) No. 8115 of 2003) (With   Civil Appeal No.   2439    /2008 SLP (C) No.8117/2003) (Civil Appeal No.   2440    /2008 SLP (C) No.8118/2003) (Civil Appeal No.   2441    /2008 SLP (C) No.8324/2003) (Civil Appeal No.   2442    /2008 SLP (C) No.8325/2003) (Civil Appeal No.   2450    /2008 SLP (C) No. 12693/2003) (Civil Appeal No.   2454    /2008 SLP (C) No.12438/2003) (Civil Appeal No.   2456    /2008 SLP (C) No. 13261/2003) (Civil Appeal No.   2437   /2008 SLP (C) No.8114/2003) (Civil Appeal No.   2444-2445   /2008 SLP (C) No.8119-8120/2003) (Civil Appeal No.   2446-2447   /2008 SLP (C) No.8121-8122/2003 (Civil Appeal No.   2448-2449   /2008 SLP (C) No.8158-8159/2003) (Civil Appeal No.   2453/2008 SLP (C) No. 13861/2003 (Civil Appeal No.   2451/2008 SLP (C) No. 13949/2003) (Civil Appeal No.   2452/2008 SLP (C) No.13280/2003) (Civil Appeal No.   2455/2008 SLP (C) No. 12930/2003) T.C.( C ) No.60/2004, 61/2004, 62/2004, 63/2004, 64/2004, 73/2004, 42/2005 and 47/2005)

Dr. ARIJIT PASAYAT, J.  

1.      Leave granted.  2.      These appeals are taken up alongwith Transfer Case  (Civil) Nos.60-64/2004, 73/2004, 42/2005 and 47/2005.  

3.      In all these cases the basic issue is the legality of General  Insurance (Rationalisation of Pay Scales and Other Conditions  of Service of Development Staff) Amendment Scheme, 2003 (in  short ’2003 Scheme’).

4.      The present scheme purports to amend the earlier  scheme framed under Section 17A of the General Insurance  (Business Nationalization) Act, 1972 (in short the ’Act’). The  principal scheme was framed in 1976 in exercise of powers  under Section 16(1)(g) of the Act. The scheme was amended  earlier in the years 1987, 1990 and 1996 and 2000. The  principal scheme of 1976 was challenged but the challenge  was turned down and legality of the scheme was upheld by  this Court. Several writ petitions have been filed by  Development Officers questioning legality of the scheme on the  ground that there was unilateral change of service conditions  of the Development Officers in Class II category. The  declaration sought for in the writ petitions was that

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administrative guidelines dated 5.2.2003 were without power,  jurisdiction and legal sanctity. It was pointed out that while  changing service conditions of the Development Officers in  Class II category the service conditions of other employees in  Class I, III and IV were not touched. According to the  Development Officers the following stipulations affected them:  "Cost Norms: As per 2 (c) in the amendment, the  proviso of clause 7 of the original scheme of 1976 as  amended in 1990 was omitted.

       The proviso inserted as per 1990 amendment  is as follows:

       "Provided that for the purposes of  Para 11, 11A and 13 cost shall mean  gross emoluments paid to the  development officer during a performance  year".

       The Development Officer Marketing governed  by cost norms has to perform within stipulated cost  ratio. As per the pre amended scheme he gets the  benefit of two tier cost system i.e.

1.      For the purpose of increment. 2.      For the purpose of incentives.   

5.      Now by the 2003 amendment single cost system has  been introduced whereby the cost system for the purposes has  been withdrawn by deleting the proviso to clause 7.  The comparison table is as follows:

Development Officer     Applicable in                           Applicable in relation Operating at            increment                               to incentives. City/town                       As per 2003             Existing        As per 2003     Exis ting                                 Cost ratio              cost ratio      cost ratio        co st ratio

A Cities                        7%                      8%                      7%           7%

B Cities/Towns          8%                      9%                      8%              8%

C Other Centres         10%                     11%                     10%             10%

Existing scheme was amended in 1996. "Cost ratio" is the ratio expressed as percentage of cost  incurred on a person of the development staff to the scheduled  premium income procured through him during the concerned  year.

6.      Cost relaxation was done from time to time by amending  the scheme. The 2003 amendment brought down the cost ratio  by 1% in all centers thereby increasing the cost ratio beyond  stipulated limits.  This resulted in monetary loss by way of  decrement. This would not only lead to reduction in salary but  would ultimately result in termination of  service.   7.      Through the following illustration it is demonstrated that  as to how the consequence of the 2003 amendment adversely  affects a development officer having a basic pay of Rs.13,630/-

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SALARY COST RATIO PREMIUM TO BE PROCURED. EXISITING BASIC, DA, H RA,CCA 8% Rs.31,88,000 /

Rs.2,55,096

REVISED BASIC, DA,HRA,CCA Rs.2,55,096

Add: Non-Core allowance 7% Rs.44,15,000 / Rs. 54,000  Conveyance +Entertain- Ment+Phone+TE  Rs.3,09,096

8.      The above illustration shows how a development officer  put on constrain to maintain his cost in revised norms he has  to procure an additional premium of Rs.12,27,000/- in this  competitive market scenario or other wise he will directly loose  the monetary benefits proportionate to his premium income.

9.      The core benefits that a Development Officer gets is as  indicated in the original scheme in the shape of "gross  emoluments" which is an aggregate of basic pay, dearness  allowance, hill station allowance, house rent allowance and  city compensatory allowance. 10.     The Non-Core benefits such as Conveyance,  Entertainment, Telephone allowance, Travelling Expenses  incurred to procure premium, are exempted from Income Tax  as per CBDT Rules. But through the 2003 Amendment the  respondents have added the entire non core benefits to the  cost ratio. Thereby as per the above illustration the  development officer who was procuring a business of  Rs.32,00,000/- premium has to now procure a business of  Rs.43,36,000/- to maintain the cost ratio and to make himself  eligible for an increment. 11.     Deletion of ASPI Provision.

As per the original scheme of 1976 para 12 indicates that  a development officer shall have to procure a minimum  premium income out of all or any of the following types of  business namely: 1.      All risk insurance, 2. baggage  insurance, 3. cash-in-transit  insurance, 4. cattle insurance, 5.  insurance of pump sets and lifts, 6.  machinery breakdown insurance, 7.  pedal cycle insurance, 8. personal  accident insurance for individuals  including the janata personal  accident policies, 9. shop keepers or  house holders comprehensive

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insurance, 10. any other class of  insurance notified by the Central  Government from time to time in this  behalf. This has been omitted by  2003 Amendment.

The premium earned in this category is called Adjusted  schedule premium income. If a development officer procures  premium on this count the same is credited to his account  with double benefit. Such a premium earned by a development  officer gives him the benefit of adjusted premium income that  is ASPI as the specified business prescribed by the company  from time to time. If premium is not procured under this  category the schedule premium income earned shall be  notionally reduced by an amount equal to the short fall and  such reduction shall not be deemed as penalty.

       Withdrawal of para 12 through the 2003 amendment  pushes the development officer into an extreme difficulty in  achieving the premium targets and fulfilling the cost norms.  This not only results in monetary loss in the form of non core  allowance but also leads to decrements thereby adversely  affecting the service conditions. 12.     Change in incentive Scheme

Through paras 14, 14A and 15 a Development Officer  would get Cost based Growth Incentive and Profit Incentive.  The growth incentive and cost saving profit incentive is based  on the performance of the development officer. The margin in  cost ratio as provided in the amended scheme 1987 are  withdrawn and replaced by one single incentive scheme which  is totally based on the profitability as per the 2003  amendment. This incentive is directly related to the claims  arising due to accidents, and natural calamities which are  beyond the control of a development officer. This is arbitrary  as in any industry it is universally accepted that the incentives  to the marketing staff shall be linked to their sales  performance.  

13.     No career prospects:  The 2003 amendment gives a development officer an  option to take a voluntary retirement or in the alternative to  opt to be in the administration. But the scheme is silent in  regard to career prospects of a development officer who opts to  work in the administration. Without specifying as to what  would be the promotional avenues for a person opting for  working in administration. Such an option would be  meaningless and the amended scheme would arbitrarily push  the development officer out of the company.

14.     Transfer:        A Development Officer who works in a particular area  invests his time and energy to familiarize himself with the  market conditions and thereafter starts procuring business for  the Company. Now by the 2003 amendment the respondent  has brought in transfer policy where a Development Officer  can be transferred to totally a new place even to a different  State also. This would not only make the life of a Development  Officer difficult but he would not be in a position to procure  business for a company immediately. This action of the  respondent virtually amounts to killing of the insurance  business.

       It has been pointed out that because of the introduction  of the scheme not only the Development Officers suffered

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financial loss but there shall be great deal of inconvenience  caused because of the transfer modes.  

       A Development Officer because of his personal efforts  nourishes the locality and with his personal touch attracts  more persons for being covered by insurance coverage. It is  also submitted that though there is provision for being  transferred to administrative posts, it is not clear as to what  are the promotional prospects.       

15.     In response, learned counsel for the respondents  submitted that Section 17A provides for framing, amending,  adding to and altering schemes governing the conditions of  service of the various classes of employees in various Public  Sector General Insurance Companies. Section 17A(4) provides  a copy of every such scheme is required to be laid before each  House of Parliament. Section 17A(6) provides that every such  scheme shall have effect notwithstanding any other law,  award, instruments etc. The Central Government has power  under Section 17A(2) to amend a scheme under Section  16(1)(g). The impugned amendment scheme was made taking  into consideration the recommendations made by Malhotra  Committee in its report which is known as "Malhotra  Committee Report on Reforms in the Insurance Sector".  

16.     It is the stand of the respondents that as a matter of fact  the report was foundation for introduction of the Insurance  Regulatory and Development Authority Act, 1999 (in short  ’IRDA Act’). On the basis of the recommendations   amendments were made to the Act, Life Insurance (Business  Nationalization) Act, 1956 and the Insurance Act, 1938 (in  short the ’Insurance Act’). The Malhotra Committee examined  the state of the insurance industry and gave specific  suggestions regarding the working of Development Officers  and other reforms inter-alia necessary for the growth of the  insurance industry.

17.     It is pointed out by learned counsel for the respondents  that it is not correct to say that in every case in routine  manner transfers will be affected. The cost ratio, it is pointed  out, is the same as was in 1976. It is stated that normally a  Development Officer who functions within the cost ratio will  not be transferred. Presently, the practice is to transfer within  150 kms. It is also stated that promotional norms for Class I,  III and IV category officers have been finalized. In case of Class  II officers because of order of status quo passed by some High  Courts the same is at the draft stage and the same shall be  finalized after disposal of these cases. It is also pointed out  that there is scope for wage revision on a five year basis. The  periods to which these cases relate are Ist August, 2002 and  Ist August, 2007. The revision has not been effected because  of status quo order passed by this Court and various High  Courts which are the subject matter of challenge in the Special  Leave Petitions where leave has been granted.  

18.     It is true as contended by learned counsel for the writ  petitioners that a personal factor has a role to play  notwithstanding the overall importance of the entity.  With  opening of economy there is a remarkable change in the  various sectors including the insurance sector. Since  modifications appear to have been done for the purpose of  rationalization, there is no scope for interference because  essentially a policy decision is immune from judicial review  unless it is founded on no rational basis or material to justify

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the change in policy.  

19.     It is to be noted that initially the Central Government had  amended the scheme under Section 16(1)(g) which was struck  down by a three-Judge Bench of this Court in Ajoy Kumar  Banerjee and Ors. v. Union of India and Ors. (1984 (3) SCC  127). Thereafter the Act was amended in the year 1985 w.e.f.   the appointed day under the Act  i.e. 1.1.1973. By virtue of  this amendment a new Section 17A was introduced in the Act  and the Central Government was empowered to amend the  scheme under Section 16(1)(g) and the authority was upheld  in Kishan Prakash Sharma and Ors. v. Union of India and  Ors. (2001 (5) SCC 212).  It was inter-alia observed in the said  case as follows:

"2. The Preamble to the Act explains the purpose of  the Act as to provide for the acquisition and transfer  of shares in the Indian insurance companies and  undertakings of other insurers in order to serve  better the needs of the economy in securing  development of general insurance business in the  best interest of the community and to ensure that  the operation of the economic system does not  result in concentration of wealth to the common  detriment for the regulation and control of such  business and for matters connected therewith or  incidental thereto. Section 2 declared that it was for  giving effect to the policy of the State towards  securing the principles specified in Article 39(c) of  the Constitution and under Section 3(a) "acquiring  company" has been defined as any Indian insurance  company and where a scheme had been framed  involving the merger of one or more insurance  companies in another or amalgamation of two or  more such companies means the Indian insurance  company in which any other company has been  merged or the company which has been framed as a  result of amalgamation. Section 4 provides that on  the appointed day all the shares in the capital of  every Indian insurance company shall be  transferred to and vested in the Central Government  free of all trusts, liabilities and encumbrances  affecting these. Section 5 provides for transfer of the  undertakings of other existing insurers. Section 6  provides for the effect of transfer of undertakings.  Section 8 provides for provident fund,  superannuation, welfare or any other fund existing.  Section 9 stipulates that the Central Government  shall form a government company in accordance  with the provisions of the Companies Act to be  known as "General Insurance Corporation of India"  for the purpose of superintending, controlling and  carrying on the business of general insurance.  Section 10 stipulates that all shares in the capital of  every Indian insurance company which shall stand  transferred to and vested in the Central Government  by virtue of Section 4 shall immediately on such  vesting, stand transferred to and vested in the  Corporation. Chapter 4 deals with the amounts to  be paid for acquisition. Chapter 5 of the Act deals  with the scheme for reorganisation of general  insurance business. Sections 16 and 17 are  important, to which we will advert to later and by  amendment of the Act by an Ordinance issued in  1984 and subsequently replaced by an Act in 1985,

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the said provisions have been amended and a fresh  provision was introduced as Section 17-A to which  we will advert later in detail. After the Act came into  force, several schemes have been framed by the  Board of Directors and two Schemes, one dated 30- 7-1977 amending the provisions regarding sick  leave and another Scheme pertaining to the  payments to be made to the provident fund were  challenged before this Court in the case of Ajoy  Kumar Banerjee v. Union of India. The main ground  of attack in that writ petition is that the amended  notification altering the conditions of service is  illegal as the Central Government has no power to  issue it under Section 16 of the Act and as such the  notification framing the scheme is ultra vires  Section 16(1) of the Act. It was contended that once  the merger of the Indian companies had taken place  and the process of reorganisation was complete on  1-1-1974 as stated before by forming the 4  insurance companies by 4 Schemes framed in 1973,  there could be no further reorganisation of the  general insurance business and the merger of more  insurance companies inasmuch as in the amended  Scheme there was no merger or reorganisation  contemplated unlike the 1974 Scheme. Mere  amendment of the terms and conditions of service of  the employees unconnected with or not necessitated  by reorganisation of the business or merger or  amalgamation of the companies could not  fall  within Section  16(1)(g) of the Act. It was also  noticed by this Court that under the Life Insurance  Corporation Act and the Banking Companies Act  provisions have been made to frame regulations  independently of the reorganisation and there is no  such comparable power under the Act and,  therefore, the Schemes impugned herein are made  without authority of the law. This contention found  favour with this Court. On interpretation of the  provisions it was held that the power under Section  16(1)(g) to frame scheme for rationalising the  provisions regarding pay scales and other terms and  conditions of service of officers and other employees  wherever necessary if unrelated to the object  envisaged in sub-section (2) of Section 16 of the Act  will not fall within the scope of exercise of powers  and it would fall outside the same if the power  exercised is beyond delegation and in view of the  fact that the Scheme of 1980 so far as it does not  relate to the amalgamation or merger of the  insurance company is not warranted by Section  16(1) of the Act. Ultimately, this Court held that the  Amended Scheme of 1980 was bad as beyond the  scope of the authority of the Central Government  under the Act. Further it was also made clear that  the parties will be at liberty to adjust their rights as  if the Scheme had not been framed and it was  further made clear that this order will not prevent  the Government, if so advised, to frame any  appropriate legislation or make any appropriate  amendment giving power to the Central Government  to frame any scheme as it considers fit and proper.

xx                              xx                              xx

6. At this stage, we may notice the following

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amendments effected to the Act:  

(a) In the definition clause in Section 3(o), the  expression "scheme" was altered to mean not only  one framed under Section 16(1) but also "a scheme  framed under Section 17-A". (b) Section 16 of the principal Act was amended  by introducing an additional sub-section (8) after  sub-section (7) to the effect that the power to frame  a scheme under sub-section (1), and the power  conferred under sub-section (6) to add to, amend or  vary any scheme framed under this section, shall  include the power to frame such scheme with  retrospective effect from a date not earlier than the  appointed day.  (c) Section 17-A is introduced in which a  validation clause and some consequential  amendments have been added which we reproduce  hereunder:  "17-A. (1) The Central Government may, by  notification in the Official Gazette, frame one or  more schemes for regulating the pay scales and  other terms and conditions of service of officers and  other employees of the Corporation or of any  acquiring company.  (2) A scheme framed under sub-section (1) may  add to, amend or vary any scheme framed under  Section 16 including any addition, amendment or  variation made therein by notification under sub- section (6) of Section 16 with respect to  rationalisation or revision of pay scales and other  terms and conditions of service of officers and other  employees of the Corporation or of any acquiring  company, to provide for further rationalisation or  revision of such pay scales and other terms and  conditions of service notwithstanding that such  further rationalisation or revision is unrelated to, or  unconnected with, the amalgamation of insurance  companies or merger consequent on nationalisation  of general insurance business.  

(3) The Central Government may, by notification,  add to, amend or vary any scheme framed under  this section.   (4) The power to frame a scheme under sub- section (1), and the power conferred by sub-section  (3) to add to, amend or vary any scheme framed  under this section, shall include the power to frame  such scheme, or, as the case may be, to make such  addition, amendment or variation in any scheme  framed under this section, with retrospective effect  from a date not earlier than the appointed day.  (5) A copy of every scheme, and every amendment  thereto, framed under this section shall be laid, as  soon as may be after it is made, before each House  of Parliament.  (6) The provisions of this section and of any  scheme framed under it shall have effect  notwithstanding anything to the contrary contained  in any other law or any agreement, award or other  instrument for the time being in force.  (7)(1) Notwithstanding anything contained in any  judgment, decree or order of any court, tribunal or  other authority or in any other law, agreement,

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award or other instrument for the time being in  force, every scheme framed or purporting to have  been framed with retrospective effect under sub- section (1) of Section 16 of the principal Act and  every notification made or purporting to have been  made with retrospective effect under sub-section (6)  of that section before the commencement of the  General Insurance Business (Nationalisation)  Amendment Ordinance, 1984 shall be, and shall be  deemed always to have been, for all purposes, as  valid and effective as if the amendment made in the  said Section 16 by Section 3 of this Ordinance had  been part of that section and had been in force at all  material times.  (2) Notwithstanding anything contained in any  judgment, decree or order of any court, tribunal or  other authority or in any other law, agreement,  award or other instrument for the time being in  force,\027 (a) every scheme framed, or purporting to have  been framed, by the Central Government under  sub-section (1) of Section 16 of the principal Act;  and  (b) every notification made, or purporting to have  been made by the Central Government under sub- section (6) of the said Section 16,  before the commencement of the General Insurance  Business (Nationalisation) Amendment Ordinance,  1984, insofar as such scheme or notification  provides (whether with or without retrospective  effect) for any rationalisation or revision of pay  scales or other terms and conditions of service of  officers and other employees of the Corporation or of  any acquiring company, otherwise than in relation  to, or in connection with, amalgamation of  insurance companies of merger consequent on  nationalisation of general insurance business shall  be, and shall be deemed always to have been, for all  purposes, as valid and effective as if Section 17-A,  as inserted in the principal Act by Section 4, of this  Ordinance had been part of the principal Act, and  had been in force at all material times and such  scheme or notification insofar as it provides as  aforesaid had been framed or made, under the said  Section 17-A:

Provided that nothing in this section shall  apply to, or in relation to, the notification  dated the 30th day of September, 1980,  framing the General Insurance  (Nationalisation and Revision of Pay  Scales and Other Conditions of Service of  Supervisory, Clerical and Subordinate  Staff) Second Amendment Scheme, 1980. Explanation.\027In this section, the  expressions "acquiring company" and  "Corporation" shall have the meanings  respectively assigned to them in the  principal Act."

       Xx                      xx                      xx

10. Prior to 1972, there were about 106 general  insurance companies both of Indian and foreign  origin. The conditions of service of the employees of

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the said insurance companies were governed by the  respective contracts of service between the  companies and the employees. The set-up, working,  management and employment of staff by the  erstwhile insurance companies showed no  uniformity. The erstwhile companies were managed  in diverse managerial systems and no uniform  pattern of management could be discovered by the  Central Government after the nationalisation. There  was a pronounced disparity between one company  and the other at all levels in the matter of  remuneration and designations for similar posts.  Employees of different companies were holding  different designations and were paid differently for  the same kind of work at the same station. Some  companies gave very high-sounding designations  and paid salaries which were not commensurate  with the work. So the necessity for rationalisation of  the entire structure of general insurance business,  including designations, pay scales and other  conditions of service arose.    Xx                     xx                      xx

17. The challenge now to the enactment is that  this Court having held, the expression "scheme for  reorganisation of general insurance business" will  not include a scheme made after the reorganisation  is complete; that no further schemes, except in  connection with the reorganisation of the general  insurance business and merger of more insurance  companies could be effected and the impugned  Scheme did not involve any such merger; that  therefore, this Scheme is ultra vires the Act; that  the provision enabling the Central Government to  frame the Scheme is bad and the provision which  gives retrospectivity to the said enactment is equally  bad as there are no guidelines in Section 17-A.  Though there can be no limitation regarding  providing better terms and conditions of service the  same cannot be modified to the detriment of the  workmen. The power that has been conferred upon  the Central Government to frame the Scheme  without guidelines is bad and the guidelines have to  be read into the provisions in such a manner that  the benefit which is already given to the workmen  should not be taken away and there should be  enough scope for collective bargaining particularly  in the absence of consultation and when there is no  limitation on upward revision, the conferment of the  power upon the authority concerned is bad.  

18. So far as the delegated legislation is concerned,  the case-law will throw light as to the manner in  which the same has to be understood and in each  given case we have to understand the scope of the  provisions and no uniform rule could be laid down.  The legislatures in India have been held to possess  wide power of legislation subject, however, to  certain limitations such as the legislature cannot  delegate essential legislative functions which consist  in the determination or choosing of the legislative  policy and of formally enacting that policy into a  binding rule of conduct. The legislature cannot  delegate uncanalised and uncontrolled power. The

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legislature must set the limits of the power  delegated by declaring the policy of the law and by  laying down standards for guidance of those on  whom the power to execute the law is conferred.  Thus the delegation is valid only when the  legislative policy and guidelines to implement it are  adequately laid down and the delegate is only  empowered to carry out the policy within the  guidelines laid down by the legislature. The  legislature may, after laying down the legislative  policy, confer discretion on an administrative  agency as to the execution of the policy and leave it  to the agency to work out the details within the  framework of the policy. When the Constitution  entrusts the duty of law-making to Parliament and  the legislatures of States, it impliedly prohibits them  to throw away that responsibility on the shoulders  of some other authority. An area of compromise is  struck that Parliament cannot work in detail the  various requirements of giving effect to the  enactment and, therefore, that area will be left to be  filled in by the delegatee. Thus, the question is  whether any particular legislation suffers from  excessive delegation and in ascertaining the same,  the scheme, the provisions of the statute including  its preamble, and the facts and circumstances in  the background of which the statute is enacted, the  history of the legislation, the complexity of the  problems which a modern State has to face, will  have to be taken note of and if, on a liberal  construction given to a statute, a legislative policy  and guidelines for its execution are brought out, the  statute, even if skeletal, will be upheld to be valid  but this rule of liberal construction should not be  carried by the court to the extent of always trying to  discover a dormant or latent legislative policy to  sustain an arbitrary power conferred on the  executive. These very tests were adopted in Ajoy  Kumar Banerjee case also to examine whether there  is excessive delegation in framing schemes and  reading the preamble, the scheme and the other  provisions of the enactment taking note of the  general economic situation in the country, the  authorities concerned had to frame appropriate  schemes. Therefore, it is not open to the petitioners  to contend that there is excessive delegation in  relation to the enactment to frame schemes.   19. In Ajoy Kumar Banerjee case this Court after  holding that there is no excessive delegation  observed that the Scheme framed was ultra vires  the enactment for the Scheme could only be framed  once. Now the argument is that once a scheme is  framed no further scheme should be allowed to be  framed. If the legislature recognises the fact the  rationalisation resulting from the merger of several  companies are not yet over and on that basis enacts  a law to enable the Government to frame  appropriate schemes, we do not think that such  step by the legislature is arbitrary or irrational as to  be violative of Article 14 of the Constitution. In Ajoy  Kumar Banerjee case this Court pointed out that  though there is power in the Government to revise  the pay scales, it cannot exercise the power more  than once at the time of merging different

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companies for the purpose of rationalisation and  this power could have been exercised no further.  But now the enactment itself specifically provides  that every scheme framed or purporting to have  been framed by the Central Government under  Section 16(1) of the principal Act and every  notification made or purporting to have been made  thereunder insofar as such scheme or notification  provides for rationalisation or revision of pay scales  or other terms and conditions of the officers and  other employees of the Corporation are deemed  always to have been for all purposes as valid and  effective as made under Section 17-A of the Act. The  retrospective effect given to the scheme is only to  overcome the difficulty pointed out by this Court in  Ajoy Kumar Banerjee case. That lacuna having been  overcome, it is not open to the petitioners to  contend that retrospective effect given is violative of  Articles 14, 19 and 21 of the Constitution.  Validation of invalid rule by amending the main  enactment under which it is made is a well-known  legislative device approved by this Court.

               Xx                      xx                      xx  

24. The Central Government, in exercise of the  powers conferred under Section 16(1)(g) of the Act,  framed three Schemes for three different categories  of employees relating to (i) supervisory, clerical and  subordinate staff; (ii) officers; and (iii) development  staff. The Schemes also provided, inter alia, various  provisions like fixation of pay on promotion,  increments, provident fund and gratuity, etc. When  the process of categorisation and rationalisation  was in progress, it was noticed that as per the 1974  Scheme, contribution to the provident fund was @ 8  per cent of the basic salary and dearness allowance  with an equal contribution of GIC or any of its  subsidiaries. However, LIC and nationalised banks  were giving provident fund at different rates. So as  to keep parity with other similar organisations, the  Scheme was corrected by an amending notification  issued on 1-6-1976 and it was provided that the  provident fund shall be contributed by every  employee at the rate of 10% of the basic pay plus  personal pay and special pay, if any, in place of 8%  of the basic salary and dearness allowance.  

               Xx                      xx                      xx

26. The stand of the respondents is that  amendments were made while the process of  rationalisation of pay scales and other service  conditions were still in progress and the process  had not been finally completed to achieve uniformity  and inter se rationalisation in terms and conditions  of service of different categories of employees of  merged companies. In 1977 various labour unions  presented a charter of demands in relation to  revision of pay scales and service conditions. The  Scheme of 1974 contained a provision to the effect  that the provisions of the Scheme relating to scales  of pay, dearness allowance etc. will continue to be  in force till the Government modified the same. After  considering the demands of the unions and the view

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of the management, the Government formulated  guidelines and requested the management to hold  consultations and discussions with the unions so  that final views of the unions may be known and  may be taken into account by the Government  before modifying the pay scales, etc. But this course  will not indicate that there was an obligation cast on  the Government to formally negotiate with the  unions. However, in keeping with the democratic  tradition and to maintain harmonious industrial  relations the management had several rounds of  discussions with the four major registered unions.  The procedure of consultations and discussions was  adopted in order to narrow down the differences to  the minimum and to ensure that the viewpoint of  the employees was kept in mind before any scheme  was finalised by the Government.  

20.     It was further clarified that if the scheme is prima facie  discriminated it is open to challenge.   

21.     In para 28 it was held that there was no need for any  consultation with the employees. When the changes  introduced by the scheme are considered in the background of  the position in law and the decision of this Court by a  Constitution Bench in Prakash Sharma’s case (supra) there is  no scope for interference in these appeals.  However, it would  be in the interests of the officers and the insurance companies  if the Development Officers who work within the cost ratio are  not transferred unless the transfer is required to be done in  public interest.  So far as the promotional prospects and the  wage revision are concerned, a draft policy stated to have been  formulated for the latter be finalized within a period of three  months. The writ petitions filed in different High Courts stand  dismissed because of this judgment. Consequentially, the  interim orders passed which form the subject matter of  challenge in the appeals are vacated subject to the directions  given supra.   

22.     The appeals are allowed. The transfer petitions stand  disposed of.