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CASE NO.: Appeal (civil)  4312-4317 of 1998

PETITIONER: State Bank of India and Ors.                             

RESPONDENT: Vs. K.P. Subbaiah and Ors.                                   

DATE OF JUDGMENT: 16/07/2003

BENCH: SHIVARAJ V. PATIL & ARIJIT PASAYAT

JUDGMENT:

J U D G M E N T

WITH

CIVIL APPEAL NOS. 4621-24 OF 2003 (Arising out of SLP(C) Nos.15808-15811/1998)

WITH

CIVIL APPEAL NOS.4625-26 OF 2003 (Arising out of SLP(C) Nos.2998-2999/1999)

ARIJIT PASAYAT, J

       Leave granted in SLP (C) Nos.15808-15811/98 and 2998- 2999/99.

       These appeals have their base on a judgment of the High  Court of Karnataka at Bangalore disposing of writ petitions  Nos.3426-27/1986 and writ petition Nos. 6432-35/1987.   

       The background scenario in which the present dispute  appears, lies within a very narrow factual compass. Six  persons who are the respondents in the appeal Nos. 4312- 4317/98 (hereinafter referred to as ’the employees’) were  ex-servicemen in the Indian Army.  They are appellants in  the other appeals. After discharge from Army service they  were employed by the State Bank of India (in short ’the  Bank’). They were discharged from defence services during  the period from 1.4.1982 to 1.9.1984 and joined the Bank on  different dates during the period from 11.8.1983 to  7.6.1984. In terms of the Government of India’s policy, the  basic pay and the dearness allowance last drawn by them  while in military service was to be protected while fixing  their pay on absorption into public sector banks. During the  period when the employees joined the bank, the pay and  allowances payable to employees of the Bank were governed by  the Third Bipartite Settlement which was operative from  1.9.1978. Having regard to the Government’s policy and as  per the decision of the Indian Banks Association (in short  ’the Association’), all public sector banks followed the  norms in the matter of fixation of pay as per the Third  Bipartite Settlement. The Fourth Bipartite Settlement became

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retrospectively operative from 1.7.1983. Under the said  settlement, there is an upward revision in the pay scales  and the basic pay of the employees were revised on stage to  stage basis. The annual increments were also given to the  concerned employees. When the matters stood thus, the Bank  issued a Circular dated 12.10.1985 regarding fixation of pay  relating to ex-servicemen employed in the public sector  banks. This was the starting point of controversy. By Staff  Circular dated 24.11.1986, the Bank notified that while  dearness allowance and interim relief drawn by ex-servicemen  shall qualify for protection as components of D.A., the  other allowances like city compensatory allowance and H.R.A.  did not qualify for such protection. Eleven types of  emoluments admissible in defence services were to be  protected on re-employment in the Bank. On the basis of the  aforesaid Circulars dated 12.10.1985 and 24.11.1986 the pay  last drawn by the employees stood reduced. This reduction  was challenged by the employees before the High Court.  Following questions were formulated by the High Court for  consideration.

"(i) When the IV Bipartite Settlement was  signed on 17.9.1984 bringing into force new  scales of pay, with retrospective effect  from 1.7.1983, what was the proper course to  be adopted by the Bank, in the case of  petitioners (who were appointed between  1.7.1983 and 17.9.1984):-

       (a)     whether the pay of  petitioners had to be revised by  fitment in the new scales of pay,  on a stage to stage basis, with  reference to the pay fixed under  the III Bipartite Settlement,  retrospectively from the date of  petitioners entering with service  (as contended by the petitioners);  or

       (b)     Whether a fresh fitment  in the new pay scales (under IV  Bipartite Settlement) should have  been effected to protect the pay  and allowances last drawn when in  Defence Service, in place of the  earlier fitment in the old pay  scales under the III Bipartite  Settlement (as contended by the  Bank).

(ii)    If the revision of pay of petitioners,  by fitment in the new scales of pay, on  stage to stage basis, was contrary to the  scheme under which petitioners were  appointed, whether the Bank could  subsequently rectify the error by re- fixation of pay of petitioners, by fitment  in the new pay scales (under IV Bipartite  Settlement) with reference to the last pay  drawn in Defence Service.  

(iii)   Whether by resorting to such  refixation the Bank can reduce the salary of  the petitioners to a level which is less

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than the salary at which they were appointed  when they joined the services of the Bank  even though the refixed salary protects the  last pay drawn while in Defence service."           

       On consideration of rival stands, the High Court  observed that Part (a) of first question was to be answered  in the negative while part (b) of the said question was to  be answered in the affirmative. Question No.(ii) was to be  answered in the affirmative; question No.(iii) in the  negative and finally it was concluded that the Bank’s  Circulars dated 12.10.1985 and 24.11.1986 were upheld  subject to conclusions at paragraph 23(d) of the judgment.  The memos prepared by the Bank revising the pay at the time  of entry of the employees in the banks were quashed. It was  declared that the Bank was entitled to correct the mistake  committed by them in revising the pay of the employees by  fitment in the new pay scales under IV Bipartite Settlement  on stage to stage basis and were also entitled to re-fix the  pay and D.A. on the basis of their entry into service with  reference to the new pay scales under the IV Bipartite  Settlement. But while doing so, the total pay packet of the  employees should not be less than the total pay fixed when  the employees entered the service of the Bank. In other  words, the total pay fixed by the Bank when the employees  entered its service should be protected. Consequently, while  re-fixing the pay and allowances payable to the employees as  on the date of entry into service under Circulars dated  12.10.1985 and 24.11.1986, the basic pay and D.A. of the  employees should not be less than Rs.1319.99, Rs.1596.12,  Rs.1380.50, Rs.1319.99, Rs.1582.61 and Rs.1582.61  respectively.  

       The relevance of these figures shall be dealt with a  little later.  

       It was further held that the employees were entitled to  further allowances on the basis of re-fixation subject to  the minimum mentioned above.  

       Mr. K.N. Raval, Learned Solicitor General appearing for  the appellants-Bank submitted that the conclusions of the  High Court are erroneous because it proceeded on the basis  as if a scale of pay was to be protected not the pay in  terms of the policy decision. A bare reading of the relevant  circular of the Government of India makes the position  crystal clear that the protection was of the pay. It  obviously meant that the employees were not to receive any  amount below the last pay drawn by them. It had nothing to  do with any scale of pay. The anomaly has arisen because the  Fourth Bipartite Settlement was made retrospectively  operative. In order to protect the pay, fixation of a scale  was without an alternative. The employees cannot claim a  double advantage by seeking a corresponding increase in the  pay scale. Had the pay scale been in contemplation at the  time of fixing the salary structure, the basic pay could not  have been fixed at a higher figure and that would have  avoided the claim of a corresponding scale of pay. It was  submitted that if the High Court’s view is accepted, it  would mean conferring double benefit on the employees which  was not a contemplated idea in protecting the pay.  

       Per contra, learned counsel appearing for the employees  submitted that fixation of pay and retrospective operation

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of the Fourth Bipartite Settlement were within the choice of  the employer-Bank and employees had nothing to do with it.  By indicating a particular scale of pay at the time of  absorption, a right is conferred on the employee to get a  corresponding higher scale of pay as and when there is  revision of the scale of pay. Undisputedly, the employees  were fitted in a particular scale of pay and as a natural  corollary and consequence they were entitled to the  corresponding scale of pay in terms of the subsequent  Bipartite Settlement.  He also submitted that the High Court  was not justified in denying certain benefits for which the  employees have filed appeals.

       The rival contentions need careful consideration.  Though a plea had been taken by the employees that  unilateral revision of the scale of pay was violative of  principles of natural justice, the same was abandoned by  learned counsel for the employees during hearing of the  case. It was submitted that all the relevant materials were  placed before the High Court and, therefore, the issues  should be decided on merits.   

It would be relevant to quote the Circular dated  12.10.1985, which, inter alia, reads as follows:  

       "....Fitment of salary in cases of the  ex-servicemen who joined the Bank’s service  after the revision of pay scale in September  1978 is being done on the basis of the  protection of pay drawn by them prior to  their retirement. Pursuant thereto, ex- servicemen employees who have joined the  Bank on or after 1.7.1983 i.e. the date from  which the wage revision of award staff in  terms of the Fourth Bipartite Settlement  came into effect retrospectively, but before  17.9.1984 (the date of settlement) have been  fitted in the old scale of pay, on the basis  of the protection of pay last drawn by them  in the Armed Forces prior to their  retirement.  

       (2)     The question as to how their  salary should be re-fixed under the Fourth  Bipartite Settlement has been examined by  the Central Office in consultation with IBA.  According to IBA guidelines:

       (a)     The pay fixation in the  case of ex-servicemen, who joined  the Bank’s service on or after  July 1, 1983 may be made on the  basis of protection of pay drawn  in the Armed Forces or at a stage  where the new basic pay plus  dearness allowance corresponds to  the basic pay plus dearness  allowance drawn by them in the  Armed Forces, whichever is  higher.  

       (b)     In the cases of those  ex-servicemen who joined the Bank  between July 1, 1983 and  September 17, 1984 and were given

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the fitment in the scale of pay  under the Third Bipartite  Settlement, they may be given re- fixation in the above manner, but  if as a result of such re- fixation, their salary (pay +  D.A.) is reduced, the recovery of  excess payment for the period  July 1, 1983 to September 17,  1984 be waived. Recoveries for  subsequent period will be made  where necessary in three to four  instalments.

3.      It has been decided to accept the IBA  guidelines referred to above."

       The effect of the Circulars dated 12.10.1985 and  24.11.1986  can be figuratively crystallized as follows: Names                   Stage           Effective date          Basic Pay       Permissible  Total                                                                                 Allowances  Employee                A               14.6.1982               535/-           404.00        939.00 in W.P. 3426/1986       B               7.6.1984                        545/-           774. 99              1319.99 (K.P. Subbaiah)         C               7.6.1984                        875/-           498. 75              1373.75                         D               7.6.1984                        615/-           350. 55               965.55 ____________________________________________________________________________________________ _

Employee                A               1.4.1982                        700/-           625. 60              1325.60 in W.P. 3427/1986       B               11.8.1983               705/-           891.12       1596.12 (M. Shamanna)           C               11.8.1983               1125/-          528.75       1653.75                         D               11.8.1983               930/-           437.10       1367.10 ____________________________________________________________________________________________ _

Employee                A               1.6.1984                        550/-           687. 90              1237.90 in W.P. 6432/1987       B               22.5.1984               580/-           900.50       1380.50 (M. Meenakshi )         C               22.5.1984               930/-           530.00       1460.00 Sundaram                D               22.5.1984               820/-           467.40       1287.40 ____________________________________________________________________________________________ _ Employee                A               1.9.1984                        520/-           655. 40              1175.40 in W.P. 6433/1987       B               22.5.1984               545/-           774.99       1319.99 (K.Sakkarias)           C               22.5.1984               875/-           498.75       1373.75                         D               22.5.1984               775/-           441.75       1216.75 ____________________________________________________________________________________________ Employee                A               29.2.1984               595/-           736.30      

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1331.30 in W.P. 6434/1987       B               22.5.1984               620/-           962.61       1582.61 (S. Balasubramaniam)    C               22.5.1984               990/-           564.30       1554.30                         D               22.5.1984               875/-           498.75       1373.75 ____________________________________________________________________________________________ _ Employee                A               1.9.1984                        520/-           595. 40              1115.40 in W.P. 6435/1987       B               22.5.1984               620/-           962.61       1582.61 (Kewal Kumar Vaid)      C               22.5.1984               990/-           564.30       1554.30                         D               22.5.1984               730/-           416.10       1146.10 ____________________________________________________________________________________________ _ Note (i) Stage ’A’ refers to the Stage when the employees were discharged from military serv ice.

  (ii) Stage ’B’                       refers to the stage when the employees joined the se rvice of the  Bank and  pay was fixed as per the Third Bipartite Settlement scales of pay.

(iii)   Stage ’C’                       refers to the stage when the pay was revised on stag e to stage                                         basis, as per the Fourth Bipartite Settlement, with  retrospective                                         effect from 1.7.1983 (or in the case of employees fr om the date                                          of their entry into service) corresponding to the sa lary fixed                                         under the Third Bipartite Settlement.

(iv)    Stage ’D’                       refers to the stage when pay and allowance was refix ed by the                                          Bank in pursuance of its Circular dated 12.10.1985.

(v)                                     While calculating permissible allowances, HRA, and C CA have  been omitted.  Only DA, ADA, GCB  and IR taken for Stage ’A’ and  only  DA taken for stages B, C and D.                                        

           There was some amount of controversy as to what was to  be protected. With reference to Government of India’s letter  dated 28.1.1983 it was submitted by learned counsel for the  employees that dearness allowance was to be excluded. We,  however, notice that the stand was different before the High  Court which proceeded on the basis that the protection was  to be given in respect of the last pay drawn which was  inclusive of D.A. It is also relevant to take note of the  Association’s letter dated 28.4.1982 in which a reference  has been made to Government of India, Ministry of Finance’s  communication to the following effect:

       "It has been decided that while fixing  the pay of ex-servicemen in nationalized  banks the basic pay plus D.A. last drawn by  them in the military service would be  protected and in this process their pension

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upto Rs.125/- per month would be ignored.  The banks may now be advised to take  necessary action in this regard under  intimation to us."       

One thing is clear from various documents based on record  that the intention as reflected in the policy of Government  of India was to protect the last pay drawn of the concerned  ex-servicemen in the armed forces.  

       Learned Solicitor General is, therefore, right in his  submission that the protection related to pay and not to a  scale of pay. Submission of learned counsel for the  employees that after having been fitted to a scale of pay  in force at the time of absorption as a natural corollary  and consequentially a corresponding scale of pay in the  subsequent settlement at first flush appears attractive.  But it does not stand closer scrutiny. The apparent  intention was to ensure that the ex-serviceman at the time  of employment in the public sector bank does not get an  amount as pay lesser than what he was drawing while in  defence service. Perforce a scale of pay was to be fixed.  It stands to logic that the employer while fixing pay has  to fix it at a level of pay which would ensure compliance  with the requirement that it is not less than the last pay  drawn. The scale of pay on the basis of Third Bipartite  Settlement applicable to clerical cadre was Rs.325-20-405- 25-455-30-545-35-580-40-660-45-750-50-800-60-1160. After  retrospective operation of the Fourth Bipartite Settlement,  the scale became Rs.520-30â\200\224580-35-685-45-820-55-930-60- 990-65-1055-70-1195-85-1280-95-1660.  

       Strictly speaking, there is no fitment to a particular  scale as contended by the employees. The fitment into a  particular scale has to be considered in the background of  the policy decision to ensure the payment of an amount not  less than the last pay drawn. In that sense, it cannot be  said that there was any fitment to a particular scale to  attract the corresponding scale of pay in terms of  subsequent settlement.  

       In Service jurisprudence the expressions ’pay’ and ’Pay  scale’ are conceptually different connotations. Pay is  essentially a consideration for the services rendered by an  employee and is the remuneration which is payable to him.  Remuneration is the recurring payment for services rendered  during the tenure of employment. Pay and salary are  necessarily not interchangeable concepts. Their meanings  vary depending upon the provisions providing for them.  

       As per Concise Oxford Dictionary 8th Edn. (1990), the  word ’pay’ in its ordinary significance in relation to  service means "to give what is due for services done".  However, in the Service Jurisprudence, the expression ’pay’  has technical connotation of its own. Fundamental Rule 9(21)  throws some light on this aspect. The definition itself is  as follows:

"9(21)(a)- Pay means the amount drawn  monthly by a Government servant as-

       (i)     the pay, other than special  pay or pay granted in view of his  personal qualifications, which has

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been sanctioned for a post held by  him substantively or in an  officiating capacity, or to which he  is entitled by reasons of his  position in a cadre, and

       (ii)    overseas pay, special pay and  personal pay, and

       (iii) any other emoluments which  may be specially classed as pay by  the President."  

       There are different types of pay like substantive pay,  special pay, additional pay, personal pay and presumptive  pay.  

       Public services comprise of different grades and,  therefore, different pay scales are provided for different  grades. The pay of an employee is in that background fixed  with reference to a pay scale. This is necessary to be done  because the pay of an employee does not remain static.  

       It has to be noted that an employee starts with a  particular pay which is commonly known as initial pay and  the periodical increases obtained by him are commonly known  as increments. When the highest point is reached, the  concerned employee becomes entitled to what is known as  ceiling pay. It is, therefore, a graded upward revision.  

       The fixation of pay scales is essentially a function of  the executive. They are closely inter-linked with evaluation  of duties and responsibilities attached to the posts and the  pay scales are normally linked with conclusions arrived at  by expert bodies like the Pay Commission.  

       The degrees of skill, strain of work, experience  involved, training required, responsibility undertaken,  mental and physical requirements, disagreeableness of the  tasks, hazard attendant on work and fatigue involved are  some of the relevant factors which go into the process of  fixing the pay scale. [See Delhi Veterinary Association v.  Union of India and Ors. (1984 (3) SCC 1)]

As noted above, a pay scale has different stages  starting with initial pay and ending with ceiling pay. Each  stage in the scale is commonly referred to as basic pay. The  emoluments which an employee gets is not only the basic pay  at a particular stage, but also the additional amounts to  which he is entitled as allowances e.g. D.A. etc. Therefore,  when a question of pay protection comes, the basic feature  is that the fitment or fixation of pay in a particular scale  must be such as to ensure that the total emoluments are not  reduced.

Ordinarily, a pay structure is evolved keeping in mind  several factors, for example (i) method of recruitment, (ii)  level at which recruitment is made, (iii) the hierarchy of  service in a given cadre, (iv) minimum educational/technical  qualifications required, (v) avenue of promotion, (vi) the  nature of duties and responsibilities, (vii) the horizontal  and vertical relativities with similar jobs, (viii) public  dealings,(ix) satisfaction level, (x) employer’s capacity to  pay etc. Such a carefully evolved pay structure ought not to  be ordinarily disturbed as it may upset the balance and

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cause avoidable ripples in other cadres as well. [See  Secretary, Finance Department and Ors. v. West Bengal  Registration Service Association and Ors. (AIR 1992 SC  1203)]  

The Government of India, Ministry of Finance,  Department of Economic Affairs (Banking Division) by its  letter dated 28.1.1983 had indicated what was to be  protected. It is clearly spelt out therefrom that for the  purpose of fixation of pay of ex-servicemen re-employed in  the public sector banks, protection was to be given to total  emoluments i.e. pay plus D.A. (instead of only pay) last  drawn by ex-servicemen before their retirement from the  Armed Forces. The initial guidelines were fixed by letter  dated 2.2.1980 and the Indian Banks Association Circular  dated 28.4.1982. The guidelines were partially modified by  letter dated 28.1.1983 and it was stipulated that pay  fixation in the case of ex-servicemen who joined service  after revision of pay scale in September 1978 will be on the  basis of protection of pay instead of pay plus D.A. drawn by  them prior to retirement. In other words, their pay fixation  will be in accordance with the office memorandum issued by  the Ministry of Finance, Department of Expenditure dated  25.11.1958, 16.1.1964 and 19.7.1978. The stress, as is  evident from various documents noted above, was on  protection of total emoluments received by the concerned  employee before retirement from the Armed Forces. The  obvious intention was to, as indicated supra, see that the  total emoluments do not fall below what was being received  by him as pay plus last D.A. in Armed Forces. The Office  memorandum dated 28.1.1983 is of considerable importance and  is quoted below: F.No.2/8/78-SCT(B) Government of India Ministry of Finance Department of Economic Affairs (Banking division)

New Delhi, dated the 28th January, 1983

To

       The Chairman & Mg. Director (20 Nationalised  Banks)         The Chairman, State Bank of India, Bombay.         The Mg. Directors: 7 subsidiaries of SBI         The Chief Officer, DPP. Reserve Bank of  India, Bombay         The Chairman & Mg. Director: IDBI/IROI/IFCI.

Subject:- Ex-servicemen re-employed in Public  Sector banks â\200\223 fixation of pay.

                               ___

Sir,

       I am directed to invite reference to this  Department’s letter of even number dated 2.2.1980  and the Indian Banks’ Association’s circular No.  PD/76/589/865 dated 28.4.1982 on the above  subject.  These two letters to be read together  and accordingly for the purpose of fixation of

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pay of ex-servicemen re-employed in the public  sector banks, protection was to be given to total  emoluments i.e. ’pay+DA’ (instead of only pay)  last drawn by ex-servicemen before their  retirement from the Armed Forces.

2.      In partial modification of the guidelines,  conveyed through the aforesaid letters, it has  been decided that :

(i)     In respect of ex-servicemen, absorbed  in banks’ service prior to September  1978, if no recoveries were made on  account of pension and pension  equivalent of gratuity in excess of  Rs.125/- p.m. such recovery may not be  made with retrospective effect.   However, in future the adjustment of  pension will be made in accordance  with the Department of Expenditure  O.M.No.18(34)-E.III(B)/57 dated  25.11.1958 (copy enclosed) read with  IBA’s circular No.PD/76/589/865 dated  28.4.1982.   

(ii)    The pay fixation in the case of ex- servicemen who joined Banks’ service  after the revision of pay scales in  September, 78 will however be on the  basis of protection of "pay" (instead  of pay + DA) drawn by them prior to  retirement.  In other words, their pay  fixation will be in accordance with  the following office memorandum issued  by the Ministry of Finance, Deptt. Of  Expenditure:

       1. O.M. No.18(34)-E.III(B)/57 dated  25.11.1958.                                2.      O.M. No.7(34)-E.III/62 dated  16.1.1964.

       3.      O.M. No.5(14)-E.III(B)/77 dated  19.7.1978.                 

(Copies of these OMs are enclosed)

3.      For the purpose of qualifying service,  necessary to avail of housing loan,  conveyance loan, etc. service rendered by  the ex-servicemen in defence forces may be  taken into account.

4.      If certain number of years of service  are prescribed as a minimum eligibility  criteria for promotion from one cadre to  another, rules in this regard may be  suitably modified to give weightage to ex- servicemen on the basis of their service in  the Defence Forces.

5.      Receipt of this letter may please be  acknowledged and action taken reported to  this Department at an early date.

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       Hindi version of this letter will  follow.

                                       Yours faithfully,                                                 Sd/-                                      (Ahmad Fareed) Under Secretary to the Government of  India."  

 There was no intention to protect any particular scale  of pay. That being the position, the demand of a  corresponding pay scale has no rational. The High Court was,  therefore, clearly in error in holding that the scale of pay  was the determinative factor. The direction that while re- fixing the pay and D.A. the total pay fixed when the  petitioner entered into the bank’s service has to be  protected within the corresponding scale of pay, cannot be  maintained and is indefensible.  

Civil Appeal nos. 4312-4317 of 1998 are accordingly  allowed.

In the connected appeals filed by the employees,  challenge is to the observations of the High Court as noted  above. It could not be shown as to how they suffer from any  infirmity. We do not find anything wrong in the impugned  conclusions of the High Court challenged by the employees to  warrant interference. The appeals are dismissed. There shall  be no order as to costs in all the appeals.