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RBI Legal News and Views
(Part 1 of 2)

January - March 2001

VOL. 6

NO. 1

Contents

From The Editorial Desk

Journal Section

Indian Banking Emerging Challenges Strategies and Solutions - Legal Perspective

Contemporanea Expositio and Executive Construction

Superannuation Dues Payable to Legal Heirs - Whether Attachable

Judgement Section

Recent Judgements Relevant to Bankers

Legislation Section

Financial Companies Regulation Bill 2000

Bibliography & Book Review

Select Bibliography

Protection of Human Rights By Chinna Vyran

A Report on 2nd In-House Training Programme for Legal Officers and Asstt. Legal Advisers

L.D. News

Mail Bag

 

From the Editorial Desk

A Society free from any scam is unthinkable. India has its own share of scams: "Shoe Scam", "Animal Husbandry Scam", "Securities Scam", "Housing Scam", "Urea Scam", "Bihar Fodder Scam", etc. etc. .A Joint Parliament Committee (JPC) was constituted to investigate, "the largescale irregulations and malpractice, which were noticed in the securities transactions of banks" in 1992 which came to be described by some people as "The scam of the century". This is what the JPC said in its report about this scam

"the scam is basically a deliberate and criminal misuse of public funds through various types of securities transactions with the aim of illegally siphoning off funds of banks and PSUs to select brokers for speculative returns ……The most unfortunate aspect has been the emergence of a culture of non-accountability, which permeated all sections of the Government and banking system over the years. The state of the country's system of governance, the persistence of non-adherence to rules, regulations and guidelines, the alarming decay over time in the banking systems has been fully exposed. These grave and numerous irregularities persisted for so long that eventually it was not the observance of regulations, but, their breach that came to be regarded and defended as "market practice"….. What is more apparent is the systematic and deliberate abuse of the system by certain unscrupulous elements. It is abundantly clear that the scam was the result of failure to check irregularities in the banking systern and also liberalization without adequate safeguards. There is also some evidence of collusion of big industrial houses playing an important role. It is because of these elements that the economy had to suffer and while some gained thousands of crores, millions of investors lost their saving……"

It is to be remembered that unless and until one is found guilty under the scam, he cannot be seen in the eye of law as guilty. The Apex Court has posed a question how to prevent in future the scam of the types at hand, "Housing Scam", and observed: "It seems that no scam can be avoided howsoever rigid rules may be framed or guidelines laid down. Scams are creatures of moribund mind and low moral character. With various types of scams all around, it is too much to expect that we can provide any formula by which any scam can be prevented" [(1997)1 SCC 444 Shiv Sagar Tiwari vs. Union of India and Others]. Hence, scams should not be allowed to derail progress and the show must go on.

This issue opens with an article on Indian banking dealing with the emerging challenges, strategies and solutions from a legal perspective. Thereafter, we present an article on the interpretation of the laws, in particular, on the principle of `contemporanea expositio'. It is followed by an article of topical interest, on attachment of superannuation dues payable to legal heirs of deceased employees in the context of different statutes like Civil Procedure Code, Provident Funds Act and the Payment of Gratuity Act.

The Judgements Section, covers as usual the decisions of the Supreme Court and the High Courts on a variety of subjects. In the Legislation Section, we present the Financial Companies Regulation Bill, 2000, which is proposed to be enacted to substitute Chapters III B and III C of the Reserve Bank of India Act to regulate non-banking financial companies and prohibit acceptance of deposits by unincorporated bodies. Apart from this, we have included a write-up on an in-housetraining programme for officers conducted by' us recently and also the other usual features, namely Bibliography, Book Review (on Protection of Human Rights by C. Chinna Vyran, Advocate), LID News and Mail Bag.

M.A. Batki
Legal Adviser


Journal Section

Indian Banking Emerging Challenges Strategies
and Solutions - Legal Perspective*

N.V. Deshpande
Pr. Legal Adviser

Economic reforms have given banks an opportunity to expand beyond its traditional services. The stage to this end was set in the early part of last decade and from then on the outlook of the banking industry changed completely to meet the challenges from within and outside too. Law as an instrument of management is able to meet the changing needs of the banking industry or not is the question discussed in this article. The focus of this article is mainly around Operational and Technological issues which the bankers are expected to tackle and which also throw everyday newer challenges to them.

The challenge of NPAs has to be met on two fronts, viz., past or accumulated NPAs and future NPAs. While the former will have to be quickly eliminated and the future ones will have to be certainly prevented. Elimination is possible if there could be found quicker methods of compromise or adjudication. No doubt, steps have been taken but this has not proved to be effective. So newer strategies have to be evolved and tested. Eventhough, Settlement Advisory Committees could help the banks to a certain extent in this direction we may have to consider employing more alternative dispute resolution mechanisms in the process. The existing Lok Adalat system may be a good forum but needs to be changed suitably to deal with banking matters and may require an amendment to Legal Services Authorities Act, 1987. Similarly, the Banking Ombudsman's set up can be used to bring about settlement of past cases by giving the Banking Ombudsman the necessary powers of an arbitrator. Also centres for mediation and conciliations need to be opened in large numbers manned by professional mediators and conciliators offering their services to settle these disputes. However, for this the parties have to agree to avail of their services. These initiatives could help not only settling the past disputes but also to some extent prevent the future-disputes.

On adjudication front the Debt Recovery Tribunals had no doubt suffered set backs in the beginning when the Delhi High Court set aside the DRT Act as unconstitutional. However, with the Supreme Court monitoring the case pending before it, the Government was directed to take necessary steps. The Government amended the Act to improve greatly the functioning of the DRTs. Though the number of benches to deal with these cases has increased considerably the procedure before it could not be simplified further and made more summary than the one now adopted. Also steps like service of notices and recovery of the dues could have been privatised to a certain extent to solve the difficulties of the availability of infrastructural facilities to the DRTs. It is suggested that Dasti service of notice or alternatively courier service may be the mode of service of notice adopted by DRTs to reduce the delay occurring in these areas. Likewise, in the recovery of dues use of private professional agencies could be considered to make the recoveries more effective. DRTs may also consider delegating pre-trial procedures to the Registrars or any other administrative authority and use its time more for judicial work.

One of the methods suggested for the reduction of the NPAs is Corporate Debt Restructuring (CDR). The process is primarily rescheduling the debt portfolio of the borrowers among its creditors to help the borrowers in the revival of projects and continue operations through reduction is existing debt burden and establishment of new credit lines with implied assumption that the lender would prefer reduction in risk to optimization of returns. However, such programmes may succeed only if there is effective bankruptcy and foreclosure laws. Mechanisms like securitisation, factoring or forfeiting and assignment of receivables are also relevant which not only make recovery of dues efficient but also improve the liquidity of the banks. Developing Asset Reconstruction Companies could also help the banks in assigning their debts as assets to outside agencies for a discounted price and thereby clean up their balance sheets. Implementation of these methods would however require major stamp duty law reforms.

One of the most important challenges facing banking in India is the need for effective utilization of technology in the various facets of banking aimed at not only for improving customer efficiency but also for improving management information systems, better housekeeping including empirical decision making. Technology is also going to cause a radical change in the payment and settlement systems. For an active, smooth and large scale, participation of the various market players there is a need to have an appropriate legal framework in place. In the absence of such framework, appropriate documentation can serve the purpose. Since the technologies would be global, the documentation we seek could be available from the model agreements produced by the international agencies like UNCITRAL, etc. In any case, lack of adequate laws cannot be a ground for rejecting a new technology.

Globalisation has ushered in restructuring of the banking and financial sector through a series of amalgamations and mergers. This has also brought in convergence of different activities and businesses in the banking sector. It has introduced newer technologies and techniques in areas like fund management and security creation. Innovative products are also resorted to catering to meet the changing needs of the markets. New frontiers in the activities of the bank call for understanding and upgradation of skills in areas like risk management. In the absence of relevant laws to govern innovative products and activities the contracts between the parties will play a vital role which calls for skills in the development of proper documentation.

Slower legal processes are always blamed for tardiness in the economic reform process. Though the democratic set up of the country has certainly not proved to be a hurdle, the coalition type of government in a democratic set up with the attending policy drift has definitely caused a stow down in the economic and resulting legal reforms. This is clearly evident from the number of bills awaiting legislative enactment. In this scenario it would be useful to think of methods which do not need any legislative reforms. Banks can think of looking forward to policies which will take care of concerns arising out of social awareness. In the areas like lending to borrowers' units causing pollution, banks can assume responsibility through appropriate policies rather than act under the compulsion of legislation like Lenders Liability Act. Also, banks could evolve and codify existing banking practices into best banking practices, which will have the effect of law.

In areas like introduction of new accounts, adoption of codified best practices will remove uncertainties and disparities prevailing in the market. The codification of best practices will be less cumbersome, compared to passing of a new law and will lend flexibility and efficacy to the system. May be an Institution like Indian Banks' Association could consider taking up such a project in the interest of the banking community. To conclude it may be stated that while the legal reforms in the form of legislative enactment could be ultimately achieved, steps short of legislative amendments like codification of existing banking practices could be considered as an alternative strategy to meet the emerging challenges. Similarly, in meeting technological challenges posed by new technologies, the absence of adequate laws should not be the cause for not adopting the new technologies as well drafted contract and resulting documentation can serve the purpose and object of the law between the parties to the transaction. In this context, standardization of the documents is called for amongst the players in the market.

* This is reprint of an article published in the IBA Bulletin, March 20001, Special Issue


Comtemporanea Expositio - And Executive Construction

G.S. Hegde
Deputy Legal Adviser

The Rule

"IT is said that the best exposition of a statue or any other document is that which it has received from contemporary authority ........... the meaning publicly given by contemporary or long professional usage is presumed to be the true one, even where the language has etymologically or popularly a different meaning. It is obvious that the language of a statute must be understood in the sense in which it was understood when it was passed, and those who lived at or near the time when it was passed may reasonably be suppposed to be better acquainted than their descendants with the circumstances to which it had relation, as well with the sense then attached to legislative expression".

The above passage from Maxwell' puts in a nutshell the rule of Contemporanea expositio and its rationale.

  1. The rule was stated by Mookerjee, J2 in the following terms :

"It is a well settled principle of interpretation that courts in construing a statute will give much weight to the interpretation put upon it, at the time of its enactment and since, by those whose duty it has been to construe, execute and apply it."

This has been quoted with approval by the Supreme Court3 in subsequent cases.

3. The statutes, which confer powers on executive authorities have to be implemented and executed by such authorities. These authorities interpret the statues concerned as they understand and implement the same. This paper attempts to extract relevant observations of the Supreme Court and examine the extent to which the courts may refer to the interpretation given by such authorities while interpreting the statutes.

4. Ancient and Modern Statutes

The above rule of interpretation is not usually applied while interpreting modern statutes. The Supreme Court' was examining the question whether the word `sugar' used in the E.P. Molasses (Control) Act 1948 included `khandsari sugar'. Even though the administrative authorities had understood the Act as not referring to khandsari sugar, the Court held that the Act was quite clear that it included khandsari sugar also and observed5 as under.

"Even if it is true that persons who dealt with the statute understood its provisions in a restricted sense, such mistaken construction of the statute did not bind the Court so as to prevent it from giving it its true construction".

5. The Supreme Court6 however did not apply this rule while holding that the confession made before an excise sub-inspector is inadmissible in evidence under Sec. 25 of the Evidence Act and said that the police officer referred under Sec. 25 includes the excise sub-inspector. If this rule were applied, the expression `police officer' used in the 1872 statute could not have covered an excise sub inspector which position was unknown at that time. The Court observed7.

"We, however, agree that it would be inappropriate to attach wide meaning to the words used by the legislature in a law made in remote ages when society was static and that the position would be different with respect to words used in a law made in a modern progressive society in which the frontiers of knowledge are fast expanding. The Evidence Act was enacted at a time when already a revolution in men's ideas had set in and considerable scientific advances had already been made. The maxim laid down by Coke, cannot therefore properly be applied for construing the language used by the Legislature in S.25 of the Evidence Act."

6. Approach to Modern Acts

Court's approach to ancient Acts and modern Acts has been different in this regard. That rationale for such different approaches has been stated in the following case. The question was whether the electric lines used for the purpose of wireless station are telegraph lines under the Telegraph Act, 1885. Had this rule been applied, as the question of the legislature imagining wireless in 1885 did not arise, electric lines used for wireless station could not be regarded as telegraph tine. The Supreme Court8 did not apply the above rule of construction and held that the electric lines in question are telegraph lines and observed9 as under.

"The legal position may be summarised thus: The maxim contemporanea expositio as laid down by Coke was applied to construing ancient statutes, but not to interpreting Acts which are comparatively modern. There is a good reason for this change in the mode of interpretation. The fundamental rule of construction is the same whether the Court is asked to construe a provision of an ancient statute or that of a modern one, namely, what is the expressed intention of the Legislature. It is perhaps difficult to attribute to a legislative body functioning in a static society that its intention was couched in term of considerable breadth so as to take within its sweep the future developments comprehended by the phraseology used. It is more reasonable to confine its intention only to the circumstances obtaining at the time the law was made. But in a modern progressive society it would be unreasonable to confine the intention of a Legislature to the meaning attributable to the word used at the time the law was made, for a modern Legislature making laws to govern a society which is fast moving must be presumed to be aware of an enlarged meaning the same concept might attract with the march of time and with the revolutionary changes brought about in social, economic, political and scientific and other fields of human activity. Indeed, unless a contrary intention appears, an interpretation should be given to the words to take in new facts and situations, if the words are capable of comprehending them. We cannot therefore, agree with the learned judges of the High Court that the maxim contemporanea expositio could be invoked in construing the word "telegraph line" in the Act". (Emphasis added)

7. Highly Persuasive

This rule has however been applied while interpreting the more recent Income Tax Act 1961. The Supreme Court10 applied the principle of contemporanea expositio to interpret the provision of sub. sec, (2) of the Sec. 52 of the Income Tax Act, 1961 which provided that if

"the fair market value of a capital asset transferred by an assessee as on the date of transfer exceeds the full value of the consideration declared by the assessee in respect of the transfer of such capital asset by an amount of not less than 15 per cent of the value declared, the full value of the consideration for such capital asset shall, with the previous approval of the Inspecting Assistant Commissioner, be taken to be its fair and market value on the date of the transfer".

8. CBDT had issued two circulars to Income Tax Officers concerned stating that they should keep in mind the assurance given by the Minister of Finance and that the provisions of sec. 52 (2) of the Income Tax Act may not be invoked in cases of bonafide transactions. Even though, sec. 52(2) did not specifically state that it should not be invoked to the cases of bonafide transactions, the Supreme Court referred to the circulars in question and held that it cannot be invoked to cases of bonafide transactions. The following observations explain in clear terms the extent to which such clarifications can be relied on in interpreting statutory provisions.

"The rule of construction by reference to contemporanea expositio is a well established rule for interpreting a statute by reference to the exposition it has received from contemporary authority, though it must give way where the language of the statute is plain and unambiguous. This rule has been succinctly and felicitously expressed in Crawford on Statutory Construction, (1940 Edn.) where it is stated in paragraph 219 that Administrative construction (i.e. contemporaneous construction placed by administrative or executive officers charged with executing a statute) generally should be clearly wrong before it is overturned; such a construction, commonly referred to as practical construction, although non-controlling, is nevertheless entitled to considerable weight; it is highly persuasive" (Emphasis added).

9. Since Central Board of Direct Taxes, which is the highest authority entrusted with the execution of the provisions of the Act, understood sub-sec.(2) as limited to cases where the consideration for the transfer has been understated by the assessee, it was regarded as a strong circumstance supporting the construction that bona fide transactions did not attract Section 52 (2) of Income Tax Act. Where the language of an Act is ambiguous and difficult to construe, the court may, for assistance in its construction refer to rules made under the provisions of the Act, especially where such rules are by the statute authorising them directed to be read as part of the Act.

10. Ambiguous Expression

This rule may be applied conveniently when the language of the statute is ambigous. The Bombay Municipal Corporation had been treating the landlord of leased premises as primarily liable to pay the property tax. Even though it was possible to interpret section 146(2) of Bombay Municipal Corporation Act 1888 as imposing primary liability for payment of property tax upon the lessee. The Supreme Court11 gave due weightage to the interpretation given by the authorities and observed12 as under.

'…… where the meaning of an enactment is obscure, the Court may resort to contemporary construction, that is the construction which the authorities have put upon it by their usage and conduct for a long period of time. The principle applicable is "optima legum interpres est consuetudo13 ".'

11. Executive Construction

The pursuasive effect of uniform and consistent departmental practice on the courts has been summarised as under

.....a uniform and consistent departmental practice arising out of construction placed upon an ambiguous statute by the highest executive officers at or near the-time of its enactment and continuing for a long period of time is an admissible aid to the proper construction of the statute by the Court and would not be disregarded except for cogent reasons. The controlling effect of this aid which is known as `executive construction' would depend upon various factors such as the length of time for which it is followed, the nature of rights and property affected by it, the injustice resulting from its departure and the approval that it has received in judicial decisions or in legislation14 (Emphasis added)

12. Conclusion

It is not possible to deduce in clear terms as to when a statute may be regarded as modern and when it may be regarded as ancient. The rule was applied15 while interpreting Income Tax Act, 1961 but the rule was not applied16 while interpreting the Telegraph Act, 1885. In 1964, the Court17 referred to Evidence Act, 1872 as a modern legislation. Whether a statute is modern or ancient does not therefore appear to be the decisive factor for the application of this rule.

13. Further, for the courts to rely on the interpretation of the executive authority, it has not been laid down as to for what length of period the executive authority should have implemented the provisions as per its own understanding. It is in fact not possible to simplify any rule of interpretation to such arithmetic precision. It is also not possible to identify the nature of rights, which will be protected by the courts by applying this rule.

14. When an executive construction is challenged before a court, it is for the court to interpret the provisions and say whether the executive is right or wrong. If executive action could be justified merely on the basis of this rule, perhaps no executive action could be successfully challenged. It may be observed from the above decisions that the courts have referred to executive decision as an additional ground to support their conclusion and not as the sole ground for their conclusion. Executive construction is given due weight by the court while interpreting the provisions of the statute and unless it is clearly wrong, it will not be overturned. In spite of high persuasive force of executive construction, there should be other valid grounds to justify executive action.

 


The commission has no authority to enforce these finding. These findings may never result in the respondent feeling the pinch of administrative action.

- Douglas, William O. Federal Power Comm'n v.
Hope Natural Gas Co., 320 US. 591, 619 (1944)


1 Interpretation of Statutes, 12th Edition, page 264.

2. Baleshwar Bagarti v. Bhagirathi Dass, ILR 35 701.

3. Deshbandhu Gupta & Co. v. Delhi Stock Exchange Association Ltd., (1979) 4 SCC 565 & K. P. Varghese v. ITO (1981) 4 SCC 173.

4. Punjab Traders & Others v. State of Punjab and Ors, AIR 1990 SC 2300.

5. Ibid at 2304.

6. Rajaram v. State of Bihar, AIR 1964 SC 828.

7. Ibid at 836.

8. Senior Electric inspector v. Laxminarayan Chopra, AIR 1962 SC 159.

9. Ibid at 163.

10. K.P Varghese v. ITO (1981) 4 SCC 173.

11. National Grindlays Bank Ltd. v. Bombay Municipal Corporation, AIR 1969 SC 1048.

12. Ibid at 1052.

13 Optimus Interpres Rerum Usus- 'Usage is the best interpreter of things' - Broom's Legal Maxims 10th Edition page 623.

14 Corpus Juris Secundum Vol. 82, pp 761 to 774 cited as authority for this proposition in Principles of Statutory Interpretation by Justice G.F Singh, Sixth Edition 1996 pg. 221.

15. K.P Varghese supra.

16. AIR 1962 SC 159.

17. AIR 1964 SC 828.


Superannuation Dues Payable To Legal Heirs - Whether Attachable

V.K. Jayakar
Asst. Legal Adviser

In this write-up, judgements of the Courts of law are discussed, in which the issue examined was whether the superannuation dues, namely provident fund and gratuity payable to legal heirs of a deceased employee can be the subject matter of attachment by a Court in the execution of a decree.

1. Statutory Provisions

(A) Code of Civil Procedure

Section 60(1) of the Code of Civil Procedure enumerates various items of property which shall not be liable to attachment and sale in execution of a decree. Clause (g) of Section 60(1) mentions stipends and gratuities allowed to pensioners of the Government or of a local authority or of any other employer or payable out of any service family pension fund notified in the Official Gazette by the Central Government or the State Government in this behalf, and political pensions. Further, Clause (k) of Section 60(1) specifies all compulsory deposits and other sums in or derived from any fund to which the Provident Funds Act, 1925, for the time being applies in so far as they are declared by the said Act not to be liable to attachment. Thus, in terms of the said Clauses (g) and (k) of Section 60(1), gratuity and provident and payable to employees are exempt from attachment.

(B) Payment of Gratuity Act, 1972

Section 13 of the Payment of Gratuity Act, 1972, provides that no gratuity payable under this Act and no gratuity payable to an employee employed in any establishment, factory, mine, oilfield, plantation, port, railway company or shop exempted under Section 5 shall be liable to attachment in execution of any decree or order of any Civil, Revenue or Criminal Court.

(C) Provident Funds Act, 1925

Section 3(1) of the Provident Funds Act, 1925 provides that a compulsory deposit in any Government or Railway Provident Fund shall not in any way be capable of being assigned, or charged and shall not be liable to attachment under any decree or order of any Civil, Revenue or Criminal Court in respect of any debt or liability incurred by the subscriber or depositor, and neither the Official Assignee nor any receiver appointed under the Provincial Insolvency Act, 1920 shall be entitled to, or have any claim on any such compulsory deposit. Further, sub-section (2) of Section 3 protects any sum standing to the credit of any subscriber from attachment in case he dies and it is payable to any dependent of the subscriber. This is subject to three conditions, viz., (i) deductions permissible under the Act may be made, (ii) the dependent should be the widow or child of the subscriber or depositor and (iii) the rights of an assignee under an assignment made before the commencement of this Act are protected. Thus, any sum standing to the credit of a subscriber shall vest in the dependent free from any debt or other liability incurred by the deceased or incurred by the dependent before the death of the subscriber.

(D) Employees' Provident Funds & Miscellaneous Provisions Act, 1952

In terms of Section 10(1) of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, the amount sanding to the credit of any member in the Fund shall not in any way be capable to being assigned or charged and shall not be liable to attachment under any decree or order of any Court in respect of any debt or liability incurred by the member and neither the official assignee appointed under the Presidency-towns Insolvency Act, 1909, nor any receiver appointed under the Provincial Insolvency Act, 1920, shall be entitled to, or have any claim on, any such amount. Further, in terms of sub-section (2) of Section 10 any amount standing to the credit of a member in a provident fund at the time of his death and payable to his nominee under the Scheme or the rules of the provident fund shall, subject to any deduction authorised !by the said scheme or rules, vest in the nominee and shall be free from any debt or other liability incurred by the deceased or the nominee before the death of the member.

2. Union of India vs. Jyoti Chit Fund & Finance & Others (AIR 1976 S.C. 1163)

Issue

The appellant, the Union of India, had filed the above appeal, by special leave, against the order of dismissal in Civil Revision made by the Delhi High Court, upholding the view of the first court overruling the contention of the State, objecting to the attachment of certain provident fund and pension dues held by Union of India (on behalf of the Rajya Sabha Secretariat) in trust for the judgement-debtor who had been employed in the Rajya Sabha Secretariat.

Observations of Court

The following is an extract from the judgement containing the important observations made by the Supreme Court regarding attachment of superannuation dues:

"We may state without fear of contradiction that provident fund amounts, pensions and other compulsory deposits covered by the provisions we have referred to, retain their character until they reach the hands of the employee. The reality of the protection is reduced to illusory formality if we accept the interpretation sought. We take a contrary view which means that attachment is possible and lawful only after such amounts are received by the employee. If doubts may possibly be entertained on this question, the decision in Radha Kissen (1969) 3 SCR 28-(AIR 1969 SC 762) erases them. Indeed, our case is fortiori one, on the facts. A bare reading of Radha Kissen makes the proposition fool-proof that so long as the amounts are provident fund dues then, till they are actually paid to the government servant who is entitled to it on retirement or otherwise, the nature of the dues is not altered. What is more, that case is also authority for the benignant view that the government is a trustee for those sums and has an interest in maintaining the objection in court to attachment. We follow that ruling and overrule the contention."

Decision

The appeal was allowed and the Court of the Subordinate Judge was directed to go into the merits of the objection raised by the Union of India as to whether the amount held by it on behalf of the judgement-debtor represents provident fund and compulsory deposits, excluded from attachability in execution of civil decrees under the relevant provisions of the Provident Funds. Act, the Pensions Act and the Civil Procedure Code.

3. Usman Abubakar Sani vs. Chief Accounts Officer, G.I.P. Railway (AIR 30, 1943 Bombay 453)

Issue

Whether the amount of gratuity credited to the account of deceased employee is liable to attachment in execution of decree against deceased represented by legal heirs.

Observations of Court

The petitioner had obtained a decree against one S.D. Cornelius, an employee of the G.I.P Railway Company, for the recovery of Rs. 2,600/- with future interest and costs. The judgement debtor Cornelius died in April, 1940 and the petitioner proceeded to execute the decree against his widow and legal representative, Mrs. Cornelius for the recovery of the amount by the attachment of the arrears of salary of Mr. Cornelius and other amounts in the hands of the Railway Company as the moneys due to him. The executing court held that the amount of gratuity credited in the account of the deceased judgement debtor was not liable to attachment under Section 60, sub-section (1)(g) Civil Procedure Code and the petition was dismissed. The Bombay High Court observed that the orders governing the grant of gratuities to subordinate staff of the G.I.P Railway Company as contained in Exhibit 37, and Rule 1 provides that the agent may grant at his discretion as a reward for good, efficient, faithful and continuous service, gratuities on retirement to subordinate railway employees or to their widows and children dependent on them. That rule adds that it must be understood that the grant of the gratuities cannot be claimed as aright. The Court referred to a decision in 25 Bom.L.R. 599 in which it was held that such a gratuity is in the nature of a gift and it is to be given at the discretion of the agent and cannot be claimed by the employee as of right. Even after the agent decides to pay the gratuity, the company does not ipso facto become a trustee for the employee in respect of that amount. It was argued that since the gratuity was credited to the account of Mr. Cornelius, this amounted to a completion of the gift by delivery of this amount. The Court observed that in this case the amount was not credited to any living person and there can be no delivery of moveable property to one who is dead. The company had to find out whether after death of the employee, there was any such person entitled to the gratuity, and till then the amount was credited to the account of the deceased for the sake of convenience. The Court observed that it does not mean that thereby the amount became a part of the Provident Fund account of the deceased or that the title to it passed either to the widow or to any other dependent of the deceased. The amount was not payable to the estate of the deceased employee.

Decision

The Court took the view that the amount still remained in the hands of the company and was not credited to the account of the person who was entitled to receive it. Therefore, the mere fact that it was credited to the account of the deceased employee does not amount to a delivery as contemplated by Section 123 of Transfer of Property Act. The Court held that hence, the amount of gratuity in the hands of the company was not liable to attachment.

4. Ramwati vs. Krishnan Gopal and Others (1988 LAB.I.C. 1298, Delhi)

Issue

Whether the amount of gratuity which was payable in respect of deceased employee is liable to attachment in execution of decree passed against legal heirs of the employee. The decree was executable only against the estate of the employee in the hands of his legal heirs.

Observations of Court

The decree holder had filed a suit for recovery of money borrowed by the employee from him, against the legal heirs of the employee who had died. The suit was decreed. The decree holder filed execution application seeking attachment of dues of the deceased employee in the hands of his employer, Delhi Cloth & General Mills, which included provident fund and gratuity.

The Delhi High Court observed that Section 60(g) of the Civil Procedure Code provides that the provident fund and gratuities allowed to the pensioners of the Government or or a local authority or of any other employer are not liable to be attached in execusion of a decree. The gratuity in question was payable to the employee by his employer. If the employee had been alive he would have been definitely paid this gratuity and the same could not have been attached even if money decree was obtained against the employee. The Court observed that the question to be decided is whether with the death of the employee the nature of the said gratuity has changed in its character or it has to be termed as the gratuity still payable to the deceased.

The Court referred to the decision in Diwansingh vs. Kusimbai (1969 MPLJ, SN, 63) where the Madhya Pradesh High Court had held that the gratuity lying with the employer was attachable on the death of the employee as the amount becomes a debt payable by the employer to the legal heirs of the employee. Interpreting Section 60(g) of the C.PC., the Court opined that in terms of its provisions, only if the gratuity is payable to the employee then the same is not liable to be attached and that if the employee is dead, obviously the gratuity cannot be deemed to be payable to the employee. Hence, if the gratuity becomes payable to the heirs of the employee, the same becomes attachable in the hands of the employer since the employer is legally bound to pay the gratuity to the legal heirs. The Court was in complete agreement with the ratio laid down by the Madhya Pradesh High Court in the said judgement.

Decision

The Court held that after the death of the employee, the gratuity cannot be deemed to be payable to the employee and as the gratuity becomes payable to the heirs of the employee, it becomes attachable in the hands of the employer in execution of a decree.

5. Sathyavathy vs. Bhargavi (deceased), Vijayan & Another (AIR 1991 Kerala 377)

Issue

Whether once the gratuity amount becomes an asset of the deceased person, still it can be stated as gratuity amount and still that amount will retain the character of gratuity, so as to get exemption under Section 60(1)(g) of the Civil Procedure Code.

Observations of Court

The petitioner who is the decree holder secured a money decree against the first respondent (since deceased) who had borrowed from him. The petitioner filed an execution petition for realization of the amount and wanted to attach the provident fund and gratuity amount due to the first respondent. The Court observed that admittedly the first respondent earned the gratuity amount but since she has died, the amount can be claimed only by the legal representatives as the asset of the deceased.

The Court observed that it is difficult to say that when the attachment was sought the gratuity amount is held by the employer in trust for the judgement - debtor, because now the judgement debtor is dead and no one can have property in trust for a dead person. The character of the property held by the employer can only be a debt to be paid to the legal representatives of the deceased. If the assets of the deceased came in the possession of the legal representatives of the deceased, the properties are liable to be attached. The Court referred to and relied upon the decision in Diwansing vs. Kusimbai reported in 1969 MPLJ, 63.

Decision

The amount due as gratuity to deceased employee/ judgement debtor and payable to his legal representatives is not exempt from attachment under Section 60(1)(g) of the Civil Procedure Code.

6. Thomas George vs. Soudamini & Others (Indian Law Reports 1997 (1) 364)

Issue

Whether the amount of provident fund contribution of the subscriber and held in deposit by the State Bank of India where the subscriber was employed is exempt from attachment, under Section 60(1)(k) of the Code of Civil Procedure.

Observations of Court

An employee of State Bank of India (since deceased) had borrowed money from the appellant/decree holder. The appellant moved the lower court for attachment of a sum of Rs. 50,000/ - held by the SBI, as amounts payable to the legal representatives from out of the provident fund of the subscriber. The Court below negatived the claim for attachment on the ground that Section 60(1)(k) of the Civil Procedure Code exempts from attachment the provident fund dues.

The Court observed that the amount sought to be attached represents the provident fund contribution of the subscriber and payable under the State Bank of India Employees' Provident Fund Rules to the dependents of the subscriber. The Court referred to the provisions of Section 3(2) of the Provident Funds Act, 1925 in terms of which any sum standing to the credit of the subscriber in any Provident Fund at the time of his death, subject to the deductions mentioned therein vests in the dependent(s), free from any debt or other liability incurred either by the deceased subscriber or by the dependent(s) prior to the death of the subscriber. The Court opined that there is a statutory vesting of the provident fund on the dependents after the death of the subscriber under Section 3(2) of the said Act which on such vesting becomes the absolute property of the dependents and cannot be regarded as assets of the deceased subscriber in the hands of the dependents. Such amount is free from any liability from being attached.

The Court took the view that the provisions contained in Section 60(1)(k) of the CPC is one conceived in public interest and the refusal to order attachment of the sum standing to the credit of the deceased subscriber cannot be held to be invalid. This is a pointer of the legislative intent in Section 3(2) of the said Act that the amount in question is immune from attachment. The Court relied upon the decisions in Abdul Waheedkhan vs. Laliben Bheinabhai (1992, 1, Cur. L.R.164). The Court observed that the consensus of judicial opinion whether it be under the said Act or under the 1952 Act is that the Provident Fund amount is completely immune from attachment under any decree or order of a Civil Court.

Decision

The Court held that the provident fund amounts standing to the credit of the subscriber on his death gets vested on his dependents and the same is immune from any liability for attachment for the debt incurred by the subscriber.

7. Abdul Waheedkhan vs. Mrs. Reny Charles (AIR 1965 Mysore 303)

Issue

(i)   Whether the provident fund amount which vests in the widow of the deceased subscriber is liable for attachment for debt incurred by her before the death of the subscriber.

(ii)   Whether the benefit conferred by the P.F. Act,1925 as to the immunity from attachment of the P .F. so long as it stands to the credit of the subscriber can be waived by the person on whom the benefit has been conferred.

Observations of Court

Issue (i)

The appellant/decree-holder in execution proceeding applied for attachment of the provident fund dues belonging to the deceased Mrs. Reny Charles, the judgement debtor and payable by her employer Southern Railway. The Southern Railway filed objections to the effect that since the statutory provisions give immunity to provident fund from attachment, the attachment is contrary to the provisions of law and is void. The Court of Civil Judge as well as the first appellate court, the Court of District Judge held that the attachment was void under the provisions of Section 3 of the Provident Funds Act read with Section 60(k) of the Civil Procedure Code.

The High Court referred to the provisions of Section 3(2) of the Provident Funds Act, in terms of which any sum standing to the credit of the subscriber in any provident fund at the time of his death, vests in the dependent free from any debt or liability incurred either by the deceased subscriber or by the dependent prior to the death of the subscriber. The Court observed that the debt was due jointly by the husband and his wife and the attachment was effected prior to the date of decree for the joint debt. The attachment which was also effected before the death of the subscriber, for realization of dues payable by his wife and incurred before the death of her husband is clearly hit by the provisions of sub-section (2) of Section 3 of the P.F. Act, 1925.

Regarding the contention of the petitioner that the provident fund has ceased to be a provident fund after the death of the subscriber, the Court took the view that this contention cannot be supported either by any of the provisions of the P.F. Act or by any other authority. The Court observed that the words "until the happening of some specified contingency" in the definition of "compulsory deposit" under Section 2(a) of the P.F. Act of 1925 does not affect the protection extended to the provident fund after it becomes payable on the happening of the specified contingency, while it still stands to the credit of the subscriber.

Issue (ii)

The important observations of the Court are as follows:

"It may be stated as a general rule that if the statute is solely for the benefit of a person, he may waive his right or the benefit, if he thinks fit, or give up the rights of a personal or private nature created under an agreement, but he cannot waive a benefit conferred by a statute which has public policy for its object. There is a difference between a statute solely meant for the benefit of an individual, and a statute which has public policy for its benefit, that is, an advantage or benefit intended for an individual and one in which the public have an interest. And therefore an individual who has the benefit given to him by a statute may waive it if he thinks fit, but he cannot waive it where the public have an interest. Therefore the rule of waiver cannot apply to matters based on public policy".

The Court relied upon the decision in Graham vs. Ingleby (1845) 1-Ex-651, where it has been stated "that an individual cannot waive a matter in which the public have an interest". The Court was of the view that once it is clear that the prohibition against attachment is absolute and such prohibition is based on the public policy, then it is not permissible for any person to contract or agree that such a prohibition shall not operate on the provident fund standing to the credit of the depositor, and any such agreement being against public policy would be void in law.

Decision

The Court held that the provident fund so long as it stands to the credit of the subscriber is immune from the liability of attachment for the debt incurred by the wife, the dependant of the subscriber prior to his death. The Court further held that the contention of the appellant that it was open for the dependant of the subscriber to waive her right and agree to have the amount brought into the Court for payment to the decree holder in satisfaction of his decree, cannot be sustained. The appeal was dismissed.

8. High Court of Patna - Civil Revision No. 350 of 1990 Ram Autar Agarwal vs. Reserve Bank of India & Another - Judgement dated 17th October 1997 (Unreported)

Issue

Whether the amount of gratuity and provident fund of an employee adjudged as insolvent under the Provincial Insolvency Act, 1920 are liable to attachment for satisfying the dues of the creditors.

Observations of Court

Shri Dhiraj Kumar Bose, an employee of the Reserve Bank of India (since deceased) was adjudged as an insolvent by the District Judge Munger under the provisions of the said Act. One of the creditors filed an application before the Court for directing the employer to remit the provident fund, gratuity and other dues payable to, the insolvent to the Court. The Reserve Bank filed objections to the effect that the provident dues and gratuity were not liable to attachment in view of the provisions of Section 13 of the Payment of Gratuity Act, Section 3 of the Provident Funds Act and Section 60(1)(g) and (k) of the Civil Procedure Code. The District Judge by his order held that the gratuity and provident fund payable to the deceased was not liable to attachment. The creditor had filed this revision petition before the High Court against the said order.

The Court observed that it is an admitted position that the provisions of the P.F. Act, 1925 and Gratuity Act, 1972 are applicable in this case and referred to the relevant provisions which gives immunity from attachment. The Court pointed out that under Section 28(2) of the Provincial Insolvency Act after an order of adjudication is passed under the Act, all the property of the involvent shall vest in the Court or in a receiver, as the case may be. Further, sub-section (5) thereof provides that the property, which is exempt from attachment and sale in execution of a decree of Court under the provisions of the Code or by any other enactment at the time being in force, shall not be included in the property, which shall vest in the Court or in a receiver after jurisdiction.

The Court observed that a bare reading of the provisions contained in Sections 3 and 4 of the P.F. Act read with Section 60(1)(k) of the C.P.C. shows that the attachment of the provident fund amount is prohibited. The Court relied upon the decisions in Union of India vs. Radha Kissen Agrawalla reported in AIR 1969 SC 762 and Jyoti Chit Fund and Finance, reported in 1976,3 SCC, 607. In view of the aforesaid two judgements of the Supreme Court, it is clear that the provident fund is not liable to attachment so long it remains with the authority and is not paid to the employee, and once it is not liable to attachment, the same shall not be treated as a property of insolvent, which vests under Section 28(2) of the Provincial Insolvency Act.

Regarding gratuity, the Court relied upon the decisions in TISCO vs. Sultan Khan reported in AIR 1968, Patna 297 and held that only when gratuity is paid to the employee it becomes his property and as such, the Insolvency Court cannot attach the gratuity under the provisions of the said Act unless it is paid to the insolvent. Further, the Court referred to the provisions of Section 13 of the Gratuity Act and Section 60(1)(g) of the CPC and held that it gives total immunity to the gratuity from attachment in execution of a decree or order of a Court.

Decision

Once the gratuity and provident fund is not liable to attachment under the statutory provision, the same cannot be treated as a property of the insolvent having vested after adjudication in the Court or official receiver in view of the specific provision contained in Section 28(2) of the Provincial Insolvency Act.

9. High Court of Karnataka - Civil Revision Petition No. 3311/99 - S.D. Udayakumar vs. V. Mohan Kumar and RBI - Judgement dated 17th January 2000 (unreported)

Issue

The question to be decided was as to whether after the death of the employee, the plea of immunity from attachment in respect of gratuity is available to the legal heirs.

Observations of Court

The degree holder had filed an application before the Small Causes Court, Bangalore for attachment of provident fund and gratuity payable to the legal heirs of an employee of Reserve Bank of India, Bangalore (since deceased). The Reserve Bank (garnishee) filed objections and opposed the application for attachment on the grounds that under Section 60(1)(g)&(k) of the Civil Procedure Code, Section 13 of the Payment of Gratuity Act, and Section 3 of the P.F. Act, the provident fund and gratuity are exempt from attachment and among other decisions, relied upon the judgement of Patna High Court in Ram Autar Agarwal vs. RBI. By its order dated 15th August 1999, the trial court rejected the application for attachment. Against the said order, the petitioner filed the above civil revision petition before the Karnataka High Court challenging the order so far as it relates to gratuity. The petitioner referred to the judgement of the Kerala High Court in Sathyavathy vs. Bhargavi (AIR 1991, Kerala 377) in support of his contention that gratuity payable to legal heirs is attachable.

The Court observed that in the case of gratuity, it is only the provisions of Section 60(1)(g) of the C.P.C. which are relevant. The Court relied upon the decision of Patna High Court in the case of Ram Autar Agarwal vs. Reserve Bank of India and Another wherein it was observed that Section 13 of the Gratuity Act gives total immunity to gratuity from attachment in execution of the order of the Court.

Decision

The Court held that the amount is lying with the Reserve Bank of India and therefore, at this stage, it cannot be directed that the Reserve Bank is entitled to credit the amount of gratuity to the decree holder. The Court further observed that the question whether after receipt of the amount by the legal heir, it will retain its character as gratuity is not adjudicated at this stage.

10. Comments

It can be seen from the aforesaid judgements, that in respect of provident fund amount payable to legal heir of a deceased employee, the Mysore High Court in Waheedkhan vs. Reny Charles, the Kerala High Court in George vs. Soudamini and the Patna High Court in R.A. Agarwal vs. RBI have held that the provident fund is immune from attachment. The Courts have mainly relied upon the provisions of Section 3(2) of the Provident Funds Act, 1925 in terms of which any sum standing to the credit of the subscriber in any Provident Fund at the time of his death, subject to the deductions mentioned therein vests in the dependants, free from any debt or other liability incurred either by the deceased subscriber or by the dependants prior to the death of the subscriber.

In respect of attachment of gratuity payable to legal heir of a deceased employee, there appears to be conflict of judicial opinion. The Patna High Court in R.A. Agarwal vs. RBI, Karnataka High Court in Udayakumar vs. M. Kumar and Bombay High Court in U.A. Sani vs. G.I.P. Railway have held that the gratuity is immune from attachment. Whereas, the Delhi High Court in Ramwati vs. Krishna Gopal and Kerala High Court in Sathyvati vs. Bargavi have held that the gratuity is attachable. While interpreting the relevant statutory provisions, the Courts have taken the latter view, mainly on the ground that only if the gratuity is payable to the employee, then the same cannot be attached, but if the employee is dead the amount becomes a debt payable by the employer to the legal heirs, it becomes attachable.

The said statutory provisions have been conceived in public interest and reflects the intention of the legislature to confer the benefit of immunity from attachment in respect of provident fund and gratuity. Accordingly, the decision of the Courts should be in conformity with legislative intent and public interest. The conflicting judicial view to the effect that gratuity payable to legal heirs is attachable can perhaps be attributed to the limited nature of the provisions in Section 13 of the Payment of Gratuity Act, 1972. In my opinion, a possible solution would be to include a new provision in Section 13 of the Payment of Gratuity Act, similar to the provisions of sub-section (2) of Section 3 of the Provident Funds Act, 1925 which specifically exempts from attachment the P.F. amount of a subscriber in the event of his death and it is payable to his dependants. Therefore, suitable amendment to the provisions of the Payment of Gratuity Act is called for.


Judgements Section

Recent Judgements Relevant to Bankers

Joseph Raj
Asst. Legal Adviser

I. State Bank of India vs. EK. Andrew & Another (JT 2001(3) SC 612)

Banking Regulation Act, 1949 - Deputy General Manager of erstwhile Bank of Cochin -Appointed as Chairman for fixed tenure but removed from the post - Amalgamation of bank with State Bank of India - claim of employee to hold the post of Deputy General Manager under State Bank of India - held that he was entitled to the post as he was appointed Chairman for fixed tenure. There was no automatic cessation of service of the post of Deputy General Manager.

Facts

The respondent was a permanent employee under the Bank of Cochin and was serving as a Deputy General Manager. While so continuing he was appointed as Chairman by virtue of a resolution of the Bank of Cochin on 18-6-1979 and that appointment was approved by the Reserve Bank of India as required under the Banking Regulation Act, 1949. The initial period of appointment as Chairman was two years but the same was extended for a further period of 3 years with effect from 12-3-1981 and thus it continued till 17-6-1984. However, while continuing in his capacity as chairman of Bank of Cochin a set of charges were brought against him and proceedings were initiated by Reserve Bank of India. Ultimately by order dated 2-4-1983, he was removed from the post of Chairman. Thereafter, the Bank of Cochin was amalgamated with the State Bank of India with effect from 9-8-1985.

The respondent approached the High Court with a prayer that he is entitled to be held an employee of the Bank of Cochin on the date the Bank stood amalgamated with the State Bank of India and therefore he is entitled to be posted against the post of Deputy General Manager under the State Bank of India. The High Court came to the conclusion that the respondent must be held to be a permanent employee of Bank of Cochin and had a substantive right against that post notwithstanding his appointment as Chairman for a fixed period. The Division Bench upheld the conclusion and the decision of the single judge and dismissed the appeal filed by the Bank. Being aggrieved by the order of the Division Bench, the appellant had filed this appeal.

It was argued' on behalf of the appellant that the very fact that the respondent was appointed as Chairman with the approval of the Reserve Bank of India ipso facto would indicate that he did not retain any lien against his substantive post of Deputy General Manager and therefore the High Court erred in law in issuing the impugned direction. In support of his contention the counsel has relied on a decision in the case of Dr.S.K. Kacker V. All India Institute of Medical Sciences and Others [JT 1996 (8) SC 513]. However, the Court observed that the decision in the above case will have no application to the present case where neither the order of appointment as Chairman, nor the provisions of the Banking Regulation Act, nor any rule of the Bank of Cochin holds that there is an automatic cessation from the substantive post of the employee the moment he is appointed as Chairman though for a fixed tenure. Further, it was argued on behalf of the appellant that even under the scheme of amalgamation, the respondent would not be entitled to get the job in question as it would depend upon the very scheme itself. However, the court did not accept this contention as it does not appear to have been urged either before the single judge or before the Division Bench.

Decision

The appeal was accordingly dismissed.

II. Rajneesh Aggarwal vs. Amit Bhalla (AIR 2000 SC 518)

Negotiable Instruments Act, 1881; Sections; 138 and 141-Dishonour of cheque - Notice to drawer for payment - cheque in question issued by company through its Director -Notice for payment issued in the name of Director who had signed the cheque is notice to drawer company - Notice cannot be construed in narrow technical way - offence of dishonour of cheque - Deposit by accused drawer of entire amount covered by cheque during trial - Does not absolve the accused drawer of the liability of offence - Deposit can have some effect of sentence to be awarded. Criminal Procedure Code, 1972 -Section 482.

Facts

Three cheques were given to the appellant drawn on Bank of Baroda, Parliament Street, New Delhi for different amounts, amounting to Rs. 2,32,600/- in all. The cheques were returned when presented for encashment with the endorsement "payment stopped by the drawer". The trial court proceeded to hold enquiry under Section 202 of CrPC and thereafter took cognizance of the offence and directed issuance of process. The accused/respondent challenged the order by filing application under section 482 of the CrPC, inter alia, on the ground that the stoppage of payment by the drawer does not constitute an offence under section 138 of the N.I. Act, 1882. The petition was dismissed by the High Court. Thereafter the accused/respondent filed an application before the trial court for recalling the issuance of process which was also dismissed. The accused/respondent again filed an application under section 482 of the CrPC before the High Court, which was allowed. The complaint has preferred the present appeal against the said order.

Observations of the Court

Mere dishonour of a cheque would not give rise to a cause of action unless the payee makes a demand in writing to the drawer of the cheque for the payment and the drawer fails to make the payment of the said amount of money to the payee. The object of issuing notice indicating the factum of dishonour of the cheque is to give an opportunity to the drawer to make payment within 15 days, so that it will not be necessary for the payee to proceed against the drawer in any criminal action, even though the bank dishonoured the cheque. As the director of the company had signed the cheques, it was incumbent upon him to see that the payments were made within the stipulated period of 15 days. There is no dispute that he was not the Director of the company and he had not signed the cheques. So far as the criminal complaint is concerned, once the offence is committed, any payment made subsequent thereto will not absolve the accused of the liability of criminal offence. Once the offence of dishonour of cheque is committed and payment made subsequent thereto will not absolve the accused of the liability of criminal offence. A criminal proceeding could not be quashed on account of deposit of money in the court.

Decision

The Court set aside the impugned order passed by the High Court and directed that criminal proceedings be continued. The money which was deposited by the accused in the court may be refunded to the accused through his counsel. The Magistrate was directed to dispose of the proceedings at an early date.

III. Punjab Co-operative Bank Ltd. and Another - vs. Union of India and Others (AIR 2001 P & H)

Banking Regulation Act, 1949 Section 45(2) - Imposition of moratorium and preparation of draft scheme by Reserve Bank of India for amalgamation of bank in question with another bank- Writ Petition, against - Objections against orders also filed before Reserve Bank of India - Dismissal of - Special leave Petition also dismissed with the observation that bank would be entitled for post decisional hearing - Subsequent order of amalgamation of bank passed by Central Govt. - Objection filed as aforesaid considered by Central Govt. - No violation of principles of natural justice on the ground of absence of giving fresh hearing to bank - Constitution of India Art 14.

Facts

On 30-9-96 the Ministry of Finance, Dept. of Economic Affairs (BD) of the GOI imposed moratorium on the Punjab Co-operative Bank Ltd. and the Bari Doab Bank Ltd. from transacting any business for a period of 3 months, which was subsequently extended for another 3 months. On 7th April, 1997 the GOI rejected the objections filed by the two banks against the imposition of moratorium and the scheme of merger etc. By another notification, the Central Govt. sanctioned the scheme put up by the Reserve Bank of India for amalgamation of the two banks. The Bari Doab Bank Ltd. had challenged the orders of moratorium passed by the GOI as also the two notifications. The Writ Petition was dismissed. The Special leave Petition filed by Bari Doab Bank Ltd. was also dismissed. However, the Punjab Co-operative Bank Ltd. through its Director Shri Shiraj Raj as also Shri Shiraj Raj in his capacity as director of the Bank filed this petition under Article 226 of the Constitution of India.

Observations of the Court

The short question which falls for consideration is - Have the respondents acted in violation of the principles of natural justice?

The Petitioner bank and Bari Doab Bank are placed in an indentical situation.The orders passed in case of both the bankers are one. The decision in one of the two cases has already been affirmed by the Supreme Court by dismissing the SLP. In view of this, it appears to be no infirmity in the order passed by the Division Bench in the Writ Petition.. Hence, the action in the present case also is not violative of the principles of Natural Justice. The petitioners were afforded a due and reasonable opportunity.

Decision

Petition dismissed accordingly

IV. Satish Kumar Sharma vs. Bar Council of Himachal Pradesh (AIR 2001 SC 509)

Advocates Act, 1961 - Sections 24, 28 & 49 - Bar Council of India Rules, 1975-Rule 49 -Law Officer Enrolled as an Advocate despite being full time salaried employee - His work was not mainly or exclusively to act or plead in court as Law Officer- Cancellation or Withdrawal of enrolment - Action, not on ground of misconduct by initiating disciplinary proceedings - But on grounds that very enrolment as an Advocate was contrary to law - Cancellation or withdrawal of enrolment therefore does not tantamount to punishment - But rectification of mistake - Nature of duties and work of prosecutors and Government pleaders particularly in relation to acting and pleading in court is different from permanent employment.

The appellant, a law graduate was appointed as Law Officer by the Himachal Pradesh State Electricity Boarding in 1978. In 1984, the Respondent issued a certificate of enrolment to him. However, in 1993 the respondent called upon the appellant to appear before the committee alongwith all connected documents. Thereafter a show cause notice was issued to the appellant requiring him to explain as to why the enrolment issued to him be not withdrawn. Finally in the meeting held on 12-5-1996, the respondent passed a resolution unanimously withdrawing the enrolment of the appellant with immediate effect and directed him to surrender the enrolment certificate and under Rule 49 of the Bar Council of India Rules, 1975. He was also debarred to be an Advocate. It was contended that the respondent had no jurisdiction to withdraw the enrolment certificate granted to the appellant.

Observations of the Court

The main and opening para of Rule 49 of the Bar Council of India Rules, 1975 prohibits an Advocate from being a full time salaried employee of any person, Government, firm, Corporation or concern so long as he continues to practice and an obligation is cast on an Advocate who takes up any such employment to intimate the fact to the concerned bar council and he shall cease to practice so long as he continues in such employment. The bar created under para 1 of Rule 49 will not be applicable to Law Officers of the Central Government, State Government, any public corporation or body constituted under a statute if they are given entitlement under the Rules of their respective State Bar Council.

No rules were framed by the respondent entitling a law officer appointed as a full time salaried employee coming within the meaning of para 3 of Rule 49 to enroll as an Advocate. Such an enrolment has to come from the Rules made under Section 28(2)(d) read with Section 24(1) (e) of the Act. Hence, if there is no rule in this regard, there is no entitlement. In the absence of an express or positive rule, the appellant could not fit in the exception. If he is not acting or pleading on behalf of his employer, then he ceases to be an Advocate. If the terms of engagement are such that he does not have to act or plead but does other kinds of work, then he becomes a mere employee of the Government or Body Corporate. The expression 'Advocate' is one who actually practices before the courts which expression would include even those who are law officers appointed as such by the Government or Body Corporates. Unless a concerned State Bank Council has framed rules entitling law officers to enroll as an Advocate even though they are full time employees, they are not entitled to enrolment. In the light of the facts of the case, the enrolment of the appellant is contrary to Rule 49 of the Bar Council of India Rules, 1975 and he is not at all entitled for enrolment. The duties, nature of work and service conditions of the appellant are substantially different from the duties and nature of work of prosecutors and Government Pleaders particularly in relation to acting and pleading in Court. Thus, the appellant stood on a different footing.

Decision

The appeal is dismissed accordingly.

Kshetriya Kisan Gramin Bank vs. D.B. Sharma and Others (2001) ISCC 353

Labour Law - Pay Parity in Regional Rural Bank sponsored by U.P. Cooperative Bank Ltd. - Type of parity in pay for officers and employees accepted by National Industrial Tribunal in its award dated 30-4-1988 - NIT applied the principle of parity with the officers of the sponsor bank concerned and not the principle of equal pay for equal work - Recommendation of Equation Committee appointed by Central Government for equating them with officers of the sponsor bank concerned i.e. U.P. Cooperative Bank and not with the employees of nationalised banks or commercial banks, is valid and consistent with NIT's direction. Concepts of `Parity with others' and 'equal pay for equal work' are different - Recommendation of equation committee for parity of pay of employees of Regional Rural Banks with the pay of employees of sponsor banks concerned and not with the sponsor banks of other rural banks is constitutional.

Facts

The appellant is a Regional Rural Bank, established u/s 3 of the Regional Rural Banks Act, 1976 and sponsored by the U.P. Cooperative Bank Ltd., Lucknow which is a society registered under the U.P. Cooperative Societies Act. Out of the 196 Regional Rural Banks in the country, 195 banks are sponsored by the nationalised banks and it is only the appellant bank which is sponsored by the U.P. Cooperative Bank. The employees of the Regional Rural Bank filed writ petitions seeking parity in respect of pay, salary allowances and other benefits with the employees of the nationalised banks in corresponding or comparable posts. The writ petitions were disposed of as the Central Government agreed to appoint a National Industrial Tribunal to decide the question. The Tribunal opined that it is a matter which has to be decided by the Central Government in consultation with such authorities as it may consider necessary. In view of the observations of the Tribunal the Government of India constituted a committee called the Equation Committee and referred the award to the committee seeking for a report in the matter of equation. On the basis of the recommendations of the committee, the Central Government, in exercise of the powers under the second proviso to section 17(i) of the Regional Rural Banks Act, 1976 issued certain directions whereunder the Branch Manager's post has been equated to the post of Asstt. Manager of U.P. Cooperative Bank Ltd. and the scale of pay for the latter post was also made applicable to the former post. The High court of Allahabad set aside the said direction and held that the employees of the appellant Bank would be entitled to the scale of pay of the employees of nationalised banks. Further, it was held that the decision of the Equation Committee was contrary to the decision of the Supreme Court relating to the principle of `equal pay for equal work' as also discriminatory. Against the said order, the Kshetriya Kisan Gramin Bank filed the appeal before the Supreme Court.

Observations of the Court

The High Court passed the impugned judgement without properly applying its mind to the relevant conculsions of the Tribunal as well as the very basis on which the Equation Committee discharged its obligation of doing the job of equation and erroneously, came to the conclusion that since the nature of job performed by the employees of the appellant Bank is not dissimilar to that being performed by those sponsored by commercial or nationalised banks, a difference of pay scales and other benefits would tantamount to discrimination. The aforesaid conclusion is wholly misconceived and in utter disregard of the finding of the Tribunal as well as the Principles of Act 14 of the Constitution.

The concept "equal pay for equal work" and the concept of "claim of parity with some others" are two different concepts and the conclusions of the High Court having been based on a misreading of the findings of the Tribunal, the said conclusion is vitiated and must be set aside. The conclusion of the High Court that the Equation Committee erroneously equated the Branch Managers of the appellant Bank with the Asstt. Managers of other banks is also a conclusion not based upon any rational basis and High Court was fully in error in applying the pay structure of the Regional Rural Banks sponsored by the nationalised banks to the pay structure of the appellant bank which was sponsored by UP Cooperative Bank.

Decision

The judgement of the Allahabad High Court is set aside and the appeal is allowed. The employees of the appellant bank would get their pay structured as per the report of the Equation Committee which was duly accepted by the Government.

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