NEW INDIA ASSURANCE CO. LTD. v.

RAGHUVIR SINGH NARANG & ANR. (Civil Appeal No. 3295 of 2009)

FEBRUARY 25, 2010* [R.V. RAVEENDRAN and K. S. RADHAKRISHNAN, JJ.]

2010 (4) SCR 299

The Order of the Court was delivered by

O R D E R

R.V.  RAVEENDRAN,  J. 1.  The  respondents  were  working  as  Development Officers under the appellant - New India Assurance Co. Ltd.  

Section 17A of the General Insurance Business (Nationalisation) Act, 1972  

(‘the Act’, for short) inserted by the Amendment Act 3 of 1985 empowered the  

Central Government to regulate, by issue of notifications, the pay scales and  

other terms and conditions of service of officers and other employees of the  

appellant  by  framing  one  or  more  schemes  and  by  adding,  amending  or  

varying any scheme. In exercise of the powers under Section 17A of the said  

Act, the Central Government framed a Scheme by Notification dated 2.1.2003  

to amend the General  Insurance (Rationalization of Pay Scales and Other  

Conditions of Service of Development Staff) Scheme, 1976. Paragraph 15-C  

inserted by the said Amendment Scheme of 2003 gave a special option to the  

Development  Officers  of  the  appellant,  to  opt  within  60  days  of  

commencement of the said Amendment Scheme: (a) for Special Voluntary  

Retirement Package as per Annexure 1 appended thereto; or (b) to render his  

services as Development Officer (Administration) under paragraph 21A, as  

per Annexure II thereto. Sub-para (2) of the said Para 15-C provided that a  

Development Officer, who does not exercise either of the options, under sub-

para (1) within the stipulated period of sixty days,  shall  continue to render  

services as such under the General Insurance (Rationalization of Pay Scales

and Other Conditions of Service of Development Staff) Amendment Scheme,  

2003.

2. Annexure-1 appended to the Amendment Scheme of 2003 contained  

the  Special  Voluntary Retirement  Package (‘SVRP’  for  short).  Para  (1)  of  

SVRP specified the eligibility criteria. Para (2) thereof prescribed the ex-gratia  

amount and Clause (3) prescribed the other benefits, which a Development  

Officer seeking SVRP will be entitled. Para 5 thereof laid down the General  

Conditions of the Scheme and Clauses (3), (4) and (5) of para 5 which are  

relevant for our purpose are extracted below:

“(3)  The  mere  request  of  such  Development  Officer  seeking  Special  

Voluntary Retirement Package shall not take effect unless it is accepted  

in writing by the Company.

(4)  A Development Officer  shall  not  be eligible to withdraw the option   

once made for Special Voluntary Retirement Package.

(5) The Company shall have absolute discretion either to accept or reject  

the  request  of  a  Development  Officer  seeking  Special  Voluntary  

Retirement Package depending upon the requirement of the Company.  

The reasons for rejection of request of a Development Officer seeking  

Special Voluntary Retirement Package shall be recorded in writing by the  

Company.  Acceptance  or  rejection  of  the  request  of  a  Development  

Officer  seeking  Special  Voluntary  Retirement  Package  shall  be  

communicated to him in writing.”

(emphasis supplied)

3.  Respondents  1  and 2  on 3.3.2003 opted  for  the Special  Voluntary  

Retirement Package. The Regional Office of appellant informed the Divisional  

Office at Indore by letter dated 28.3.2003 that in view of several writ petitions  

challenging the provisions of the Amendment Scheme, the Head Office had  

instructed that it  will  not be possible to relieve all  the opting Development  

Officers  with  effect  from  1.4.2003.  The  respondents  were,  accordingly

informed  on  29.3.2003.  This  was  followed  by  a  circular  dated  31.3.2003  

issued by the appellant stating that status quo should be maintained in regard  

to Development Officers who have opted for Special  Voluntary Retirement  

Package. On 31.3.2003, the respondents requested the appellant to extend  

the scheme and give more time for exercising the option under the Scheme,  

and if that was not possible, then treat the option earlier exercised by them on  

3.3.2003  as  withdrawn  as  till  that  day  (31.3.2003)  there  was  no  

communication  from  the  appellant  regarding  acceptance  of  the  voluntary  

retirement.

4. On 1.4.2003, the appellant relieved the respondents from the services  

of  the  Company  stating  that  the  competent  authority  has  accepted  the  

voluntary retirement of the respondents. The respondents sent a letter dated  

2.4.2003 stating that they should be permitted to continue in service until a  

fresh option was given. The appellant, by letter dated 3.4.2003, informed the  

respondents that they cannot withdraw from the option already given. This  

was followed by letter dated 12.5.2003 wherein the appellant reiterated that  

the respondents were relieved on 1.4.2003 in view of the acceptance by the  

competent authority, of the option exercised by the respondents to retire from  

service.  Feeling aggrieved,  the respondents  filed a writ  petition seeking a  

direction to the appellant to reinstate them in the post of Development Officer.  

The said writ  petition was allowed by the Madhya Pradesh High Court  by  

order dated 27.8.2003, purporting to follow the decision of this Court in Bank  

of India vs.  Swaranakar & Ors., (2003) 2 SCC 721. It held that the SVRP  

Contained in the Amendment Scheme of 2003 was not a statutory scheme,  

but was contractual in nature; that the option exercised by the respondents to  

retire voluntarily in terms of SVRP was merely an offer by the respondents,  

and  that  before  the  acceptance  of  the  request  of  respondents  by  the  

appellant,  the  respondents  could  withdraw  their  offer;  and  that  as  

respondents had already withdrawn their offers on 31.3.2003, there was no

occasion  for  the  appellant  to  accept  their  offers.  The  said  decision  is  

challenged in this appeal.

5.  The  contentions  urged  give  rise  to  the  question  whether  a  

Development  Officer  who  exercises  the  option  under  the  Amendment  

Scheme of 2003, seeking the Special Voluntary Retirement Package, could  

withdraw the same before its acceptance.  

6. The Special Voluntary Retirement Package was a part of the General  

Insurance (Rationalization of Pay Scales and Other Conditions of Service of  

Development  Staff)  Amendment  Scheme  2003  framed  by  the  Central  

Government  in  exercise  of  the  powers  in  Section  17A  of  the  General  

Insurance  Business  (Nationalisation)  Act  1972.  The  said  Scheme  is  a  

delegated Legislation which is statutory in character. The validity of the said  

statutory  scheme has  been  upheld  by  this  Court  (with  reference  to  other  

provisions in the Scheme) in National Insurance Co.Ltd. v. General Insurance  

Development  Officers  Association –  2008  (5)  SCC  472  following  Kishan  

Prakash Sharma v. Union of India 2001 (5) SCC 212. Paragraph 5(4) of the  

Special  Voluntary  Retirement  Package  categorically  states  that  a  

Development Officer shall not be eligible to withdraw the option once made  

for the Special Voluntary Retirement Package.  

7.  It  is  true  that  the  principles  of  Contract  Law  relating  to  offer  and  

acceptance enables the person making the offer to withdraw the offer any  

time before its acceptance; and that any subsequent acceptance of the offer  

by the offeree,  after  such withdrawal,  will  not  result  in a binding contract.  

Where  the  voluntary  retirement  is  governed  by  a  contractual  scheme,  as  

contrasted from a statutory scheme, the said principle of Contract will apply  

and consequently the letter of voluntary retirement will be considered as an  

offer  by  the  employee and  therefore  any  time  before  its  acceptance,  the  

employee could withdraw the offer. But the said general principle of Contract  

will  be  inapplicable  where  the  voluntary  retirement  is  under  a  statutory

scheme which categorically bars the employee, from withdrawing the option  

once  exercised.  The  terms  of  the  statutory  scheme  will  prevail  over  the  

general  principles  of  contract.  This  distinction  has  been  recognized  by  a  

series of decisions of this Court. We may refer to a few of them :  

(7.1.) In Union of India vs.  Gopal Chandra Misra – 1978 (2) SCC 301, a  

Constitution Bench of this Court held :  

“It will bear repetition that the general principle is that in the absence of a   

legal, contractual or constitutional bar, a ‘prospective’ resignation can be  withdrawn  at  any  time  before  it  becomes  effective,  and  it  becomes  

effective  when it  operates  to  terminate  the  employment  or  the  office-

tenure  of  the  resignor………. In  the  case of  a  Government  servant/or  

functionary who cannot under the conditions of his service/or office, by his  

own unilateral act of tendering resignation, give up his service/or office,  

normally, the tender of resignation becomes effective and his service/or  

office-tenure terminated, when it is accepted by the competent authority.

[emphasis supplied]

(7.2.) In  Balram Gupta vs.  Union of India – 1987 (Supp) SCC 228, this  

Court held that  independent of any statutory Rules, an employee who gives  

notice of voluntary retirement to take effect prospectively from a subsequent  

date,  is  at  liberty  to  withdraw his  notice  of  voluntary retirement,  any  time  

before it comes into effect. But this normal rule would not apply, where having  

regard  to  the  statutory  Rules  governing  the  matter,  the  employee  cannot  

withdraw except with the approval of an authority. But such approval can not  

be the  ipse dixit of the approving authority. He should act reasonably and  

rationally. He cannot keep the matter pending for unduly long time, nor can  

he discriminate in dealing with applications of employees similarly situated.  

(7.3.) In Punjab National Bank vs.  P.K. Mittal – 1989 Supp (2) SCC 175,  

this Court held :

“The result of the above interpretation is that the employee continued to  

be in  service  till  April  21,  1986 or  June 30,  1986,  on  which date  his  

services would have come normally to an end in terms of his letter dated  

January  21,  1986.  But,  by  that  time,  he  had  exercised  his  right  to  

withdraw the resignation. Since the withdrawal letter was written before  

the resignation became effective, the resignation stands withdrawn, with  

the result that the respondent continues to be in the service of the bank. It  

is true that there is no specific provision in the regulations permitting the  

employee to withdraw the resignation. It is, however, not necessary that  

there  should  be any such specific  rule.  Until  the resignation becomes  

effective on the terms of the letter read with Regulation 20, it is open to  

the employee, on general principles, to withdraw his letter of resignation.  

That is why, in some cases of public services, this right of withdrawal is  

also made subject to the permission of the employer. There is no such  

clause here.”  

[emphasis supplied]

(7.4.) In Union of India vs.  Wg.Comdr. T. Parthasarathy – 2001 (1) SCC  

158, this Court held :  

“So far  as the case in hand is concerned,  nothing in the form of  any  

statutory rules or any provision of any Act has been brought to our notice  

which could be said to impede or deny this right of the appellants. On the  

other hand, not only the acceptance of the request by the Headquarters,  

the appropriate Authority was said to have been made only on 20-2-86, a  

day after the respondent withdrew his request for pre-mature retirement  

but even such acceptance in this case was to be effective from a future  

date  namely  31-8-86.  Consequently,  it  could  not  be  legitimately  

contended  by  the  appellants  that  there  was  any  cessation  of  the  

relationship  of  master  and  servant  between  the  Department  and  the  

respondent  at  any  rate  before  31-8-86.  While  that  be  the  position

inevitably  the  respondent  had a  right  and was entitled  to  withdraw or  

revoke  his  request  earlier  made  before  it  ever  really  and  effectively  

became effective.”

[emphasis supplied]

8. In this case the statutory scheme contains a specific provision that a  

Development Officer shall not be eligible to withdraw the option once made  

for  Special  Voluntary  Retirement  Package.  In  view  of  the  said  statutory  

provision, the general principle of contract that an offer could be withdrawn  

any time before its acceptance stands excluded.

9. Let us now consider whether Clauses (3) and (5) of Paragraph 5 of the  

Scheme have any relevance to the issue. Clause (3) provides that when an  

employee  exercises  an  option  seeking  Special  Voluntary  Retirement  

Package, it will not take effect unless it is accepted in writing by the employer  

Company. Clause (5) provides that the employer shall  have the discretion  

either to accept or reject the request made by the Development Officer. The  

effect of these clauses is that voluntary retirement will not take effect unless it  

is accepted in writing by the employer.  Where the employee exercises an  

option to retire from a future date, unless and until it is accepted in writing by  

the employer, the Development Officer will continue to be the employee, even  

after  the  date  mentioned  as  the  date  of  retirement.  Similarly,  where  the  

employer rejects the request of the employee, the employer will continue as  

an employee, in spite of his exercise of option to retire. Neither Clause (3) nor  

Clause (5) can be interpreted as giving an option to the employee to withdraw  

the  option  once  exercised.  Clauses  (3)  and  (5)  of  Para  5  deal  with  the  

question as to whether the retirement, in pursuance of option exercised by  

the  employee,  will  come into  effect  without  acceptance  by  the  employer.  

These  clauses  have  no  bearing  on  the  issue  whether  the  employee  can  

withdraw from the exercise of option.

10.  The  High  Court  proceeded  on  an  erroneous  assumption  that  the  

voluntary retirement package was not part of any statutory scheme, but was  

contractual  in  nature  and  therefore  the  general  principles  of  contract  will  

apply. The reliance placed by the High Court upon the decision of this Court  

in Swarnakar, to assume that every scheme for voluntary retirement is always  

contractual and not statutory, is misconceived.  

11. A detailed reference to the decision in  Swarnakar is necessary, to  

clear the misconception under which the High Court has proceeded. The said  

decision  related  to  VRS Schemes  floated  by  Nationalised  Banks  and  the  

State Bank of India. The VRS schemes of Nationalized Banks contained a  

provision (Para 10.5) that it will not be open for an employee to withdraw the  

request  made  for  voluntary  retirement  under  the  scheme,  after  having  

exercised  such  option.  The  scheme  of  State  Bank  of  India  was  slightly  

different as it permitted withdrawal of the application before a given date and  

also  contained  a  provision  laying  down  the  mode  and  manner  in  which  

applications for voluntary retirement should be considered, which created an  

enforceable right in the employee if State Bank of India failed to adhere to its  

preferred policy. The Punjab & Haryana High Court held the VRS Scheme of  

the Nationalised Banks was not a valid piece of subordinate legislation. The  

other  High  Courts,  on  the  other  hand,  held  that  the  Clause  10.5  of  the  

voluntary retirement scheme which barred an employee from withdrawing the  

request  for  voluntary retirement  after  having exercised the option was not  

operative as the employee had an indefeasible right  to withdraw his offer  

before it was accepted. The decisions of the Punjab & Haryana High Court as  

also of the other High Courts were challenged by various Banks including  

State Bank of India and they were disposed of by the said common judgment.

(11.1.) This Court at the outset noticed that there was a difference in the  

scheme floated by the State Bank of India and the schemes framed by the  

Nationalised Banks.  This Court  held that  the schemes of  the Nationalised  

Banks were introduced by a circular  dated 20.8.2000 with  the purpose of

downsizing the number of employees and that the terms and conditions of  

service  of  the  employees  of  Nationalized  Banks  (except  in  the  matter  of  

pension)  were  not  statutory  in  nature  and  the  VRS  schemes  of  the  

Nationalised Banks were floated by way of contract and did not have any  

statutory flavour. Consequently, it was held that the provisions of the Indian  

Contract  Act,  1872 would  apply  to  the  VRS schemes of  the  Nationalised  

Banks. This Court also held that the scheme being an invitation to offer and  

not an offer by the Banks, the employee made an offer when exercising the  

option, and he can withdraw the offer any time before it was accepted by the  

employer.  This Court  further  held that  Clause 10.5 of  the scheme barring  

employee from withdrawing the request for the voluntary retirement was an  

agreement  without  consideration  and  was  therefore  not  valid.  This  Court  

observed that once it was found that by giving their option under the Scheme,  

the employees did not  derive an enforceable right,  in the absence of  any  

consideration, the term would be void in terms of Section 2(g) of the Contract  

Act as opposed to an enforceable agreement in terms of Section 2(h) of that  

Act. This Court further therefore concluded that once the application filed by  

the employees is held to be an offer, Section 5 of the Contract Act would  

come into play, in the absence of any other independent binding contract or   

statute or statutory Rules to the contrary.

(11.2.) In so far as the scheme of State Bank of India, this Court held that  

the  terms  and  conditions  of  service  of  its  employees  were  governed  by  

statutory  Rules  and  the  scheme  was  also  statutory  in  nature;  that  the  

provisions of the Scheme would show that there was some ‘consideration’ for  

the  employee  agreeing  not  to  withdraw  the  voluntary  retirement  and  

consequently the scheme would be binding. As a result this Court allowed the  

appeals  of  the  State  Bank  of  India  but  dismissed  the  appeals  of  the  

Nationalised Banks except in cases where employees have accepted a part  

of the benefit under the scheme.  

(11.3.) The effect of the decision in Swarnakar can be summarized thus :

(i)  If  a  contractual  scheme  provides  that  the  voluntary  retirement  by  

exercise  of  option  by  the  employee,  will  come  into  effect  only  on  its  

acceptance by the employer, it will not create any enforceable right in the  

employee to claim SV retirement. Any term in such a scheme that the  

employee shall not withdraw from the option once exercised, will be an  

agreement without consideration and therefore, invalid. Consequently, the  

employee  can  withdraw  the  offer  (that  is  option  exercised)  before  its  

acceptance.  But  if  the  contractual  scheme  gives  the  option  to  an  

employee to voluntarily retire in terms of the scheme and if there is no  

condition that it will be effective only on acceptance by the employer, the  

scheme gives an enforceable right to the employee to retire, by exercising  

his option. In such a situation, a provision in the contractual scheme that  

the employee will not be entitled to withdraw the option once made, will  

be valid and binding and consequently, an employee will not be entitled to  

withdraw from the option exercised.

(ii) Where the scheme is statutory in character, its terms will prevail over  

the general principles of contracts and the provision of the Contract Act.  

Further, there will be no question of any “consideration” for the condition  

in  the  Scheme  that  the  employee  will  not  withdraw  from  the  option  

exercised. Subject to any challenge to the validity of the scheme itself, the  

terms  of  the  statutory  scheme  will  be  binding  on  the  employees  

concerned, and once the option is exercised by an employee to voluntary  

retire in terms of the Retirement Package contained in the Scheme, the  

employee will not be entitled to withdraw from the exercise of the option, if  

there is a bar against such withdrawal.  

12. The question therefore is whether Clause 4 of Para 5 of the SVRS  

contained in the Amendment Scheme of 2003 is void and whether Section 5  

of the Contract Act which enables the person making the offer, to withdraw  

the offer, any time before its acceptance, would apply. The special voluntary  

retirement package is a part of the General Insurance (Rationalization of Pay

Scales and Other Conditions of Service of Development Staff) Amendment  

Scheme, 2003, made by the Central Government in exercise of the power  

under  Section  17A  of  the  General  Insurance  Business  Insurance  

(Nationalisation) Act, 1972. Section 17A, as noticed above, authorizes and  

empowers the Central Government, to frame, by notification published in the  

official gazette, 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  (including  the  appellant).  Sub-

section (6) of Section 17A provides that the provision of Section 17 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. Therefore the scheme is statutory in  

character. Consequently, the provisions of the Scheme will prevail over the  

provisions of Contract Act or any other law or any principle of contract, and  

having  regard  to  the  binding  nature  of  the  scheme,  the  employee  upon  

exercising the option, cannot withdraw from the same.

13. We, therefore, allow this appeal and set aside the judgment of the High  

Court and dismiss the Writ Petition filed by the respondents before the High  

Court.