Appeal No 869 of 1987
From the Judgment and Order dated 22121981 of the Orissa High Court in Original Judicature Case No 412 of 1976
WITH CA No 870 of 1987 RK Garg and AK Panda for the Appellants
CS Srinivasa Rao for the Respondent
The Judgment of the Court was delivered by BP JEEVAN REDDYJ
1
These appeals raise the question whether it is permissible to the government to order compulsory retirement of a government servant on the basis of material which includes uncommunicated adverse remarks
While the appellants government servants compulsory retired rely upon the decisions of this court in Brij Mohan Singh Chopra and Baidyanath Mahapatra   in support of their contention that it is not permissible the respondent government relies upon the decision in ME Reddy  to contend that it is permissible to the government to take into consideration uncommunicated adverse remarks also while taking a decision to retire a government servant compulsorily
The appellants in both the appeals have been compulsorily retired by the government of Orissa in exercise of the power conferred upon it by the first proviso to Rule 71 a of the Orissa Service Code
Since the relevant facts in both the appeals are similar it would be sufficient if we set out the facts in Civil Appeal No 869 of 1987
841 3
The appellant Sri Baikuntha Nath Das was appointed as a Pharmacist then designated as Compounder by the Civil Surgeon Mayurbhanj on 1531951
By an order dated 1321976 the government of Orissa retired him compulsorily under the first proviso to sub rule of Rule 71 of the Orissa Service Code
The order reads as follows In exercise of the powers conferred under the first proviso to sub rule a of rule 71 of Orissa Service Code the Government of Orissa is pleased to order the retirement of Sri Baikunthanath Das Pharmacist now working under the Chief District Medical Officer Mayurbhanj on the expiry of three months from the date of service of this order on him
By order of the Governor   4
The petitioner challenged the same in the High Court of Orissa by way of a writ petition being OJCNo
412 of 1976
His case was that the order was based on no material and that it was the result of ill will and malice the Chief District Medical Officer bore towards him
The petitioner was transferred by the said officer from place to place and was also placed under suspension at one stage
He submitted that his entire service has been spot less and that at no time were any adverse entries in his confidential character rolls communicated to him
In the counter affidavit filed on behalf of the government it was submitted that the decision to retire the petitioner compulsorily was taken by the Review Committee and not by the Chief Medical Officer
It was submitted that besides the remarks made in the confidential character rolls other material was also taken into consideration by the Review Committee and that it arrived at its decision bonafide and in public interest which decision was accepted and approved by the government
The allegation of malafides was denied
The High Court looked into the proceedings of the Review Committee and the confidential character rolls of the petitioner and dismissed the writ petition on the following reasoning An order of compulsory retirement after putting in the prescribed qualifying period of service does not amount to punishment as has been repeatedly held by this court
The order in question was passed by the State Government and not by the Chief Medical Officer
It is true that the confidential character roll of the petitioner contained several remarks adverse to him which were no doubt not communicated to him but the decision of this court in Union of India 842 vs MEReddy   holds that uncommunicated adverse remarks can also be relied upon while passing an order of compulsory retirement
The said adverse remarks have been made by successive Civil Surgeons and not by the particular Chief District Medical Officer against whom the petitioner has alleged malafides
It is unlikely that all the Chief District Medical Officers were prejudiced against the petitioner
In particular the court observed the materials placed before us do not justify a conclusion that the remarks in the confidential character rolls had not duly and properly been recorded The decision to retire has been taken by the Review Committee on proper material and there are no grounds to interfere with its decision it opined 6
The adverse remarks made against the petitioner in the words of the High Court are to the following effect  most insincere irregular in habits and negligent and besides being a person of doubtful integrity he had been quarrelsome with his colleagues and superior officers and had been creating problems for the administration
Rule 71 a alongwith the first proviso appended thereto which alone is relevant for our purpose reads thus 71
a Except as otherwise provided in the other clauses of this rule the date of compulsory retirement of a Government servant except a ministerial servant who was in Government service on the 31st March 1939 and Class IV Government servant is the date on which he or she attains the age of 58 years subject to the condition that a review shall be conducted in respect of the Government servant in the 55th year of age in order to determine whether heshe should be allowed to remain in service upto the date of the completion of the age of 58 years or retired on completing the age of 55 years in the public interest Provided that a Government servant may retire from service any time after completing thirty years qualifying service or on attaining the age of fifty years by giving a notice in writing to the appropriate authority at least three months before the date on which he wishes to retire or by giving the said notice to the 843 said authority before such shorter period as Government may allow in any case
It shall be open to the appropriate authority to withhold permission to a Government servant who seeks to retire under this rule if he is under suspension or if inquires against him are in progress
The appropriate authority may also require any officer to retire in public interest any time after he has completed thirty years qualifying service or attained the age of fifty years by giving a notice in writing to the Government servant at least three months before the date on which he is required to retire or by giving three months pay and allowances in lieu of such notice
xx xx xx 8
It is evident that the latter half of the proviso which empowers the government to retire a government servant in public interest after he completes 30 years of qualifying service or after attaining the age of 50 years is in pari materia with the Fundamental Rule 56j
The Government of Orissa had issued certain instructions in this behalf
According to these instructions the Review Committee if it is of the opinion that a particular government servant should be retired compulsorily must make a proposal recording its full reasons therefor
The administrative department controlling the services to which the particular government servant belongs will then process the proposal and put it up to the government for final orders
In Shyam Lal vs State of Uttar Pradesh   a Constitution Bench of this court held that an order of compulsory retirement is not a punishment nor is there any stigma attached to it
It said There is no such element of charge or imputation in the case of compulsory retirement
The two requirements for compulsory retirement are that the officer has completed twenty five years  service and that it is in the public interest to dispense with his further services
It is true that this power of compulsory retirement may be used when the authority exercising this power cannot substantiate the misconduct which may be the real cause for taking the action but what is important to note is that the directions in the last sentence of Note 1 to Article 465 A make it abundantly clear that an imputation or charge is not in terms made a condition for the exercise of the power
844 In other words a compulsory retirement has no stigma or implication of misbehaviour or incapacity
In Shivacharana vs State of Mysore AIR 1965 SC 280 another Constitution Bench reaffirmed the said principle and held that Whether or not the petitioner s retirement was in the public interest is a matter for the State Government to consider and as to the plea that the order is arbitrary and illegal it is impossible to hold on the material placed by the petitioner before us that the said order suffers from the vice of malafides
As far back as 1970 a Division Bench of this court comprising JC Shah and KS Hegde JJ held in Union of India vs JN Sinha 1971 1 SCR 791 that an order of compulsory retirement made under FR 56 j does not involve any civil consequences that the employee retired thereunder does not lose any of the rights acquired by him before retirement and that the said rule is not intended for taking any penal action against the government servant
It was pointed out that the said rule embodies one of the facets of the pleasure doctrine embodied in Article 310 of the Constitution and that the rule holds the balance between the rights of the individual Government servant and the interest of the public
The rule is intended it was explained to enable the Government to energise its machinery and to make it efficient by compulsory retiring those who in its opinion should not be there in public interest
It was also held that rules of natural justice are not attracted in such a case
If the appropriate authority forms the requisite opinion bonafide it was held its opinion cannot be challenged before the courts though it is open to an aggrieved party to contend that the requisite opinion has not been formed or that it is based on collateral grounds or that it is an arbitrary decision
It is significant to notice that this decision was rendered after the decisions of this court in State of Orissa vs Dr
Binapani Devi  and AKKraipak vs Union of India AIR 1970 SC 150Indeed the said decisions were relied upon to contend that even in such a case the principles of natural justice required an opportunity to be given to the government servant to show cause against the proposed action
The contention was not accepted as stated above
The principles enunciated in the decision have been accepted and followed in many a later decision
There has never been a dissent not until 1987
In RL Butial vs Union of India relied upon by the appellant s 845 counsel the Constitution Bench considered a case where the government servant was denied the promotion and later retired compulsorily under FR 56j on the basis of adverse entries in his confidential records
The appellant an electrical engineer entered the service of Simla Electricity Board in 1934
In 1940 he was transferred to Central Electricity Commission later designated as Central Water and Power Commission Power Wing
In 1955 he was promoted to the post of Director wherein he was confirmed in the year 1960
In his confidential reports relating to the years 1964 and 1965 certain adverse remarks were made
They were communicated to him
He made a representation asking for specific instances on the basis of which the said adverse remarks were made
These representations were rejected
Meanwhile a vacancy arose in the higher post
The appellant was overlooked both in the year 1964 as well as in 1965 by the Departmental Promotion Committee and the UPSC
On August 15 1967 on his completing 55 years of age he was compulsorily retired under FR 56j
Thereupon he filed three writ petitions in the High Court challenging the said adverse entries as also the order of compulsory retirement
The writ petitions were dismissed whereupon the matters were brought to this court on the basis of a certificate
The Constitution Bench enunciated the following propositions 1
The rules framed by the Central Water and Power Commission on the subject of maintenance of confidential reports show that a confidential report is intended to be a general assessment of work performed by the government servant and that the said reports are maintained to serve as a data of operative merit when question of promotion confirmation etc
arose
Ordinarily they are not to contain specific instances except where a specific instance has led to a censure or a warning
In such situation alone a reasonable opportunity has to be afforded to the government servant to present his case
No opportunity need be given before the entries are made
Making of an adverse entry does not amount to inflicting a penalty
When the petitioner was overlooked for promotion his representations against the adverse remarks were still pending
But inasmuch as the said representations were rejected later there was no occasion for reviewing the decision not to promote the appellant
Withholding a promotion is not a penalty under the Central Service Rules
Hence no enquiry was required to be held before deciding not to promote the 846 appellant more so when the promotion was on the basis of selection and not on the basis of seniority alone
So far as the order of compulsory retirement was concerned it was based upon a consideration of his entire service record including his confidential reports
The adverse remarks in such reports were communicated from time to time and the representations made by the appellant were rejected
It is only thereafter that the decision to retire him compulsorily was taken and therefore there was no ground to interfere with the said order
It is evident that in this case the question arising for our consideration viz whether uncommunicated adverse remarks can be taken into consideration alongwith other material for compulsorily retiring a government servant did not arise for consideration
That question arose directly in Union of India vs MEReddy 15
The respondent ME Reddy belonged to Indian Police Services
He was retired compulsorily under Rule 16 3 of All India Service Death cum Retirement Rules 1958 corresponding to FR 56 j
The contention of the respondent was that the order was passed on non existing material inasmuch as at no time were any adverse remarks communicated to him
His contention was that had there been any adverse entries they ought to have been communicated to him under the rules
The said contention was dealt with in the following words 
This argument in our opinion appears to be based on a serious misconception
In the first place under the various rules on the subject it is not every adverse entry or remarks that has to be communicated to the officer concerned
The superior officer may make certain remarks while assessing the work and conduct of subordinate officer based on his personal supervision or contract
Some of these remarks may be purely innocuous or may be connected with general reputation of honesty or integrity that a particular officer enjoys
It will indeed be difficult if not impossible to prove by positive evidence that a particular officer is dishonest but those who have had the opportunity to watch the performance of the said officer from close quarters are in a position to know the nature and character not only of his performance but also of the 847 reputation that he enjoys
The Learned Judges referred to the decisions in RLButailJNSinha and several other decisions of this court and held that the confidential reports even though not communicated to the officer concerned can certainly be considered by the appointing authority while passing the order of compulsory retirement
in this connection they relied upon the principle in JN Sinha that principles of natural justices are not attracted in the case of compulsory retirement since it is neither a punishment nor does it involve any civil consequences
the principle of the above decision was followed in Dr NVPuttabhatta vs
State of Mysore   a decision rendered by ANGrover and GKMitter  JJ Indeed the contention of the appellant in this case was that since an order of compulsory retirement has adverse effects upon the career and prospects of the government servant the order must be passed in accordance with principles of natural justice
It was contended that before passing the order a notice to show cause against the order proposed must be given to the government servant 
Reliance was placed upon the decisions in Binapani Devi and Kraipak
This contention was negatived following the decision in JNSinha
It was also pointed out applying the principles of Shivacharana that an order of compulsory retirement is not a punishment nor does it involve any stigma or implication or misbehaviour
Another contention urged in this case was that the order of compulsory retirement was based upon uncommunicated adverse remarks and that the appellant was also not afforded an opportunity to make a representation against the same
At the relevant time no appeal lay against the orders passed upon the representation
Dealing with the said contention the court observed as the confidential reports rules stood at the relevant time the appellant could not have appealed against the adverse remarks and if the opinion of the government to retire him compulsorily was based primarily on the said report he could only challange the order if he was in a position to show that the remarks were arbitrary and malafide 18
Yet another contention which is relevant to the present case is this  the retirement of the appellant therein was ordered under Rule 235 of Mysore Civil Services Rules
The language of the said rule corresponded to 848 FR56j but it did not contain the word absolute as is found in FR56j
An argument was sought to be built up on the said difference in language but the same was rejected holding that even in the absence of the word absolute the position remains the same
We are refering to the said aspect in as much as the proviso to Rule 71 a of the Orissa Service Code concerned in the appeals before us also does not contain the word absolute
In AIR1980 SC1894 Gian Singh Mann vs Punjab and Haryana High Court a Bench consisting of Krishna Iyer and Pathak JJ reiterated the principle that an order of compulsory retirement does not amount to punishment and that no stigma or implication of misbehaviour is intended or attached to such an order
In ONGC vs Iskandar Ali a probationer was terminated on the basis of adverse remarks made in his assessment roll
A Bench comprising three learned Judges Fazal Ali AC Gupta and Kailasam JJ held that the order of termination in that case was an order of termination simpliciter without involving any stigma or any civil consequences
Since the respondent was a probationer he had no right to the post
The remarks in his assessment roll disclosed that the respondent was not found suitable for being retained in service and even though some sort of enquiry was commenced it was not proceeded with
The appointing authority considered it expedient to terminate the service of the respondent in the circumstances and such an order was beyond challenge on the ground of violation of Article 311
This court has taken the view in certain cases that while taking a decision to retire a government servant under Rule 56j more importance should be attached to the confidential records of the later years and that much importance should not be attached to the record relating to earlier years or to the early years of service
In Brij Bihari Lal Agarwal vs High Court of Madhya Pradesh  upon which strong reliance is placed by the appellant s counsel a Bench comprising Pathak and Chinappa ReddyJJ
observed thus  What we would like to add is that when considering the question of compulsory retirement while it is not doubt desirable to make an overall assessment of the Government servant s record more than ordinary value should be attached to the confidential reports pertaining to the years immediately 849 preceding such consideration
It is possible that a Government servant may possess a somewhat erratic record in the early years of service but with the passage of time he may have so greatly improved that it would be of advantage to continue him in service up to the statutory age of superannuation
Whatever value the confidential reports of earlier years may possess those pertaining to the later years are not only of direct relevance but also of utmost importance
We may mention that the order of compulsory retirement in the above case is dated 28th September 1979
The High Court took into account the confidential reports relating to the period prior to 1966 which were also not communicated to the concerned officer
However the decision is based not upon the non communication of adverse remarks but on the ground that they were too far in the past
It was observed that reliance on such record has the effect of denying an opportunity of improvement to the officer concerned
The decision in Baldev Raj Chaddha vs Union of India   is to the same effect
In JD Srivastava vs State of Madhya Pradesh   it was held by a Bench of three learned Judges that adverse reports prior to the promotion of the officer cannot reasonably form a basis for forming an opinion to retire him
The reports relied upon for retiring the appellant were more than 20 years old and there was no other material upon which the said decision could be based
It was held that reliance on such stale entries cannot be placed for retiring a person compulsorily particularly when the officer concerned was promoted subsequent to such entries
We now come to the decision in Brij Mohan Singh Chopra vs State of Punjab relied upon by the learned counsel for the petitioner
In this case there were no adverse entries in the confidential records of the appellant for a period of five years prior to the impugned order
Within five years there were two adverse entries
In neither of them however was his integrity doubted
These adverse remarks were not communicated to him
The Bench consisting of ES Venkataramiah and KN Singh JJ
quashed it on two grounds viz 1
It would not be reasonable and just to consider adverse entries of remote past and to ignore good entries of recent past
If entries for a period of more than 10 years past are taken into account it would be an act of 850 digging out past to get some material to make an order against the employee
In Gurdyal Singh Fiji vs State of Punjab and Amarkant Chaudhary vs State of Bihar   it was held that unless an adverse report is communicated and representation if any made by the employee is considered it may not be acted upon to deny the promotion
The same consideration applies where the adverse entries are taken into account in retiring an employee pre maturely from service
KN Singh J speaking for the Bench observed it would be unjust and unfair and contrary to principles of natural justice to retire pre maturely a government employee on the basis of adverse entries which are either not communicated to him or if communicated representations made against those entries are not considered and disposed of
This is the first case in which the principles of natural justice were imported in the case of compulsory retirement even though it was held expressly in JN Sinha that the said principles are not attracted
This view was reiterated by KN Singh J again in  Baidyanath Mahapatra vs State of Orissa Bench comprising of KN Singh and MH Kania JJ
In this case the Review Committee took into account the entire service record of the employee including the adverse remarks relating to the year 1969 to 1982 barring certain intervening years for which no adverse remarks were made
The employee had joined the Orissa Government service as an Assistant Engineer in 1955
In 1961 he was promoted to the post of Executive Engineer and in 1976 to the post of Superintending Engineer
In 1979 he was allowed to cross the efficiency bar with effect from 111979
He was compulsorily retired by an order dated 10111983
The Bench held in the first instance that the adverse entries for the period prior to his promotion as Superintending Engineer cannot be taken into account
It was held that if the officer was promoted to a higher post and that too a selection post notwithstanding such adverse entries it must be presumed that the said entries lost their significance and cannot be revived to retire the officer compulsorily
Regarding the adverse entries for the subsequent years and in particular relating to the years 1981 82 and 1982 83 it was found that though the said adverse remarks were communicated the period prescribed for making a representation had not expired
The Bench observed  These facts make it amply clear that the appellant s 851 representation against the aforesaid adverse remarks for the years 1981 82 and 1982 83 was pending and the same had not been considered or disposed of on the date of impugned order was issued
It is settled view that it is not permissible to prematurely retire a government servant on the basis of adverse entries representations against which are not considered and disposed of
See Brij Mohan Singh Chopra vs State of Punjab
On the above basis it was held that the Review Committee ought to have waited till the expiry of the period prescribed for making representation against the said remarks and if any representation was made it should have been considered and disposed of before they could be taken into consideration for forming the requisite opinion
In other words it was held that it was not open to the Review Committee and the government to rely upon the said adverse entries relating to the years 1981 82 and 1982 83 in the circumstances
Unfortunately the decision in JN Sinha was not brought to the notice of the learned Judges when deciding the above two cases
The basis of the decisions in Brij Mohan Singh Chopra and Baidyanath Mahapatra it appears is that while passing an order of compulsory retirement the authority must act consistent with the principles of natural justice
It is said to expressly in Brij Mohan Singh Chopra
This premise if carried to its logical end would also mean affording an opportunity to the concerned government servant to show cause against the action proposed and all that it involves
It is true that these decisions do not go to that extent but limit their holding to only one facet of the rule viz acting upon undisclosed material to the prejudice of a man is a violation of the principle of natural justice  This holding is in direct conflict with the decision in JNSinha which excludes application of principles of natural justice
As pointed out above JN Sinha was decided after and expressly refers to the decisions in Binapani Devi and Kraipak and yet holds that principles of natural justice are not attracted in a case of compulsory retirement
The question is which of the two views is the correct one
While answering this question it is necessary to keep the following factors in mind a Compulsory retirement provided by FR 56 j or other corresponding rules is not a punishment
It does not involve any stigma nor any implication of misbehaviour or incapacity
Three Constitution Benches have said so vide Shyam Lal Shivacharana and RL 852 Butail
b FR 56 j as also the first proviso to Rule 71a of the Orissa Service Code empower the government to order compulsory retirement of a government servant if in their opinion it is in the public interest so to do
This means that the action has to be taken on the subjective satisfaction of the government
In RL Butail the Constitution Bench observed 
In Union of India vs Col JN Sinha this Court stated that FR 56j in express terms confers on the appropriate authority an absolute right to retire a Government servant on his attaining the age of 55 years if such authority is of the opinion that it is in public interest so to do
The decision further states If that authority bona fide forms that opinion the correctness of that opinion cannot be challenged before courts
It is open to an aggrieved party to contend that the requisite opinion has not been formed or the decision is based on collateral grounds or that it is an arbitrary decision
The law on the subjective satisfaction has been dealt with elaborately in Barium Chemicals vs Company Law Board  At page 323 Shelat J after referring to several decisions dealing with action taken on subjective satisfaction observed thus Bearing in mind these principles the provisions of section 237 b may now be examined
The clause empowers the Central Government and by reason of delegation of its powers the Board to appoint inspectors to investigate the affairs of the company if in the opinion of the Central Government now the Board there are circumstances suggesting what is stated in the three sub clauses
The power is executive and the opinion requisite before an order can be made is of the Central Government or the Board as the case may be and not of a Court
Therefore the Court cannot substitute its own opinion for the opinion of the authority
But the question is whether the entire action under the section is subjective 27
The learned Judges then referred to certain other decisions including the decision in Vallukunnel vs Reserve Bank of India  and concluded as follows 853 Therefore the words reason to believe or in the opinion ofdo not always lead to the construction that the process of entertaining reason to believe or the opinion is an altogether subjective process not lending itself even to a limited scrutiny by the court that such reason to believe or opinion was not formed on relevant facts or within the limits or as Lord Radcliffe and Lord Reid called the restraints of the statute as an alternative safeguard to rule of natural justice where the function is administrative
The blurring of the dividing line between a quasi judicial order and an administrative order pointed out in Kraipak has no effect upon the above position more so when compulsory retirement is not a punishment nor does it imply any stigma
Kraipak or for that matter Maneka Gandhi cannot be understood as doing away with the concept of subjective satisfaction
On the above premises it follows in our respectful opinion that the view taken in JN Sinha is the correct one viz principles of natural justice are not attracted in a case of compulsory retirement under FR 56j or a rule corresponding to it
In this context we may point out a practical difficulty arising from the simultaneous operation of two rules enunciated in Brij Mohan Singh Chopra
On one hand it is stated that only the entries of last ten years should be seen and on the other hand it is stated that if there are any adverse remarks therein they must not only be communicated but the representations made against them should be considered and disposed of before they can be taken into consideration
Where do we draw the line in the matter of disposal of representation
Does it mean disposal by the appropriate authority alone or does it include appeal as well
Even if the appeal is dismissed the government servant may file a revision or make a representation to a still higher authority
He may also approach a court or Tribunal for expunging those remarks
Should the government wait until all these stages are over
All that would naturally take a long time by which time these reports would also have become stale
A government servant so minded can adopt one or the other proceeding to keep the matter alive
This is an additional reason for holding that the principle of ME Reddy should be preferred over Brij Mohan Singh Chopra and Baidyanath Mahapatra on the question of taking into consideration uncommunicated adverse remarks
854 30
Another factor to be borne in mind is this most often the authority which made the adverse remarks and the authority competent to retire him compulsorily are not the same
There is no reason to presume that the authority competent to retire him will not act bonafide or will not consider the entire record dispassionately
As the decided cases show very often a Review Committee consisting of more than one responsible official is constituted to examine the cases and make their recommendation to the government
The Review Committee or the government would not naturally be swayed by one or two remarks favourable or adverse
They would form an opinion on a totality of consideration of the entire record including representations if any made by the government servant against the above remarks of course attaching more importance to later period of his service
Another circumstance to be borne in mind is the unlikelihood of succession of officers making unfounded remarks against a government servant
We may not be understood as saying either that adverse remarks need not be communicated or that the representations if any submitted by the government servant against such remarks need not be considered or disposed of
The adverse remarks ought to be communicated in the normal course as required by the Rulesorders in that behalf
Any representations made against them would and should also be dealt with in the normal course with reasonable promptitude
All that we are saying is that the action under FR56j or the Rule corresponding to it need not await the disposal or final disposal of such representation or representations as the case may be
In some cases it may happen that some adverse remarks of the recent years are not communicated or if communicated the representation received in that behalf are pending consideration
On this account alone the action under FR56j need not be held back
There is reason to presume that the Review Committee or the government if it chooses to take into consideration such uncommunicated remarks would not be conscious or cognizant of the fact that they are not communicated to the government servant and that he was not given an opportunity to explain or rebut the same
Similarly if any representation made by the government servant is there it shall also be taken into consideration
We may reiterate that not only the Review Committee is generally composed of high and responsible officers the power is vested in government alone and not in a minor official
It is unlikely that adverse remarks over a number of years remain uncommunicated and yet they are made the primary basis of action
Such an unlikely situation if indeed present may be indicative of malice in law
We may 855 mention in this connection that the remedy provided by Article 226 of the Constitution is no less an important safeguard
Even with its well known constraints the remedy is an effective check against mala fide perverse or arbitrary action
At this stage we think it appropriate to append a note of clarification
What is normally required to be communicated is adverse remarks not every remark comment or observation made in the confidential rolls
There may be any number of remarks observations and comments which do not constitute adverse remarks but are yet relevant for the purpose of FR 56j or a Rule corresponding to it
The object and purposes for which this power is to be exercised are well stated in JN Sinha and other decisions referred supra
The following principles emerge from the above discussion i An order of compulsory retirement is not a punishment
It implies no stigma nor any suggestion of misbehaviour
ii The order has to be passed by the government on forming the opinion that it is in the public interest to retire a government servant compulsorily
The order is passed on the subjective satisfaction of the government
iii Principles of natural justice have no place in the context of an order of compulsory retirement
This does not mean that judicial scrutiny is excluded altogether
While the High Court or this Court would not examine the matter as an appellate court they may interfere if they are satisfied that the order is passed a mala fide or b that it is based on no evidence or c that it is arbitrary in the sense that no reasonable person would form the requisite opinion on the given material in short if it is found to be perverse order
iv The government or the Review Committee as the case may be shall have to consider the entire record of service before taking a decision in the matter of course attaching more importance to record of and performance during the later years
The record to be so considered would naturally include the entries in the confidential recordscharacter rolls both favourable and adverse
If a government servant is promoted to a higher post notwithstanding the adverse remarks such remarks lose their 856 sting more so if the promotion is based upon merit selection and not upon seniority
v An order of compulsory retirement is not liable to be quashed by a Court merely on the showing that while passing it uncommunicated adverse remarks were also taken into consideration
That circumstance by itself cannot be a basis for interfere
Interference is permissible only on the grounds mentioned in iii above
This aspect has been discussed in paras 29 to 31 above
Before parting with the case we must refer to an argument urged by Sri RK Garg
He stressed what is called the new concept of Article 14 as adumberated in Maneka Gandhi AIR 1978 SC 579 and submitted on that basis that any and every arbitrary action is open to judicial scrutiny
The general principle evolved in the said decision is not in issue here
We are concerned mainly with the question whether a facet of principle of natural justice audi alteram partem is attracted in the case of compulsory retirement
In other words the question is whether acting upon undisclosed material is a ground for quashing the order of compulsory retirement
Since we have held that the nature of the function is not quasi judicial in nature and because the action has to be taken on the subjective satisfaction of the Government there is no room for importing the said facet of natural justice in such a case more particularly when an order of compulsory retirement is not a punishment nor does it involve any stigma
So far as the appeals before us are concerned the High Court which has looked into the relevant record and confidential records has opined that the order of compulsory retirement was based not merely upon the said adverse remarks but other material as well
Secondly it has also found that the material placed before them does not justify the conclusion that the said remarks were not recorded duly or properly
In the circumstances it cannot be said that the order of compulsory retirement suffers from mala fides or that it is based on no evidence or that it is arbitrary
For the above reason both the appeals are dismissed but in circumstances of the case we make no order as to costs
VPR Appeals dismissed


Summary:
The assessee Oil refinery predecessor in interest to the respondent Corporation in one of the appeals had registered itself as a dealer under the Bombay Sales Tax Act 1959
During the Calendar year 1961 it had purchased sulphuric acid from a chemical company for processing and refining crude oil and manufacturing kerosene for a marketing company
On the sulphuric acid so purchased sales tax was recovered from it by the chemical company
While the refined kerosene which was not taxable upto 3131961 was sold by the marketing company the acid sludge yielded in the purification process was sold by the refinery
The refinery paid sales tax on the acid sludge sold by it and claimed a set off and a refund if need be of the sales tax paid by it on its purchase of sulphuric acid on the ground that all the conditions set out in clause e of Rule 41 of the Bombay Sales Tax Rules 1959 were fulfilled viz it was manufacturer within the meaning of Section 2 17 of the Act that it was also a registered dealer that it manufactured taxable goods for sale that while acid sludge was taxable throughout the year kerosene was taxable with effect from 141961 onwards and that tax was recovered on the raw material purchased by it by the chemical company
808 The Sales Tax Officer allowed the set off only partly
On appeal the Appellate Assistant Commissioner held that the assessee was entitled to no set off at all under Rule 41 since what was manufactured by the assessee was kerosene and not acid sludge and the kerosene was sold not by the assessee manufacturer but by some other company
The Appellate Tribunal however allowed the assessee s claim in full and on reference this was upheld by the High Court
The respondent Cotton Mill in the other appeals purchased raw unginned cotton from agriculturists and unregistered dealers during periods 1773 to 30674 and 1774 to 30675 and paid sales tax on the raw cotton so purchased
The cotton was ginned yielding place to ginned cotton and cotton seed
The respondent manufactured yarn and cloth from the ginned cotton
The cotton waste and yarn waste obtained in the course of manufacture were also sold by the assessee
It paid sales tax on the yarn and cotton waste sold by it and claimed a set off under 41 A of the Rules of the sales tax paid on the purchase value of the entire raw cotton purchased by it
The Sales Tax Officer allowed a set off of only part of the purchase tax paid on the raw cotton purchased by the assessee proportionate to the extent of yarn sales
On appeal the Appellate Tribunal allowed a set off of the entire purchase tax paid on the raw cotton machinery and other purchases which had been used in the process of manufacture of cotton waste
It however directed that the deductions should be so allowed as not to result in a double deduction of the same amount of purchase tax
In the appeals by Special leave before this Court on behalf of the State Government it was contended that Rules 41 and 41 A were intended to give relief to a dealer in respect of purchase of goods which were used in the manufacture of taxable goods for sale that the manufactured goods viz pure kerosene was neither sold by the respondent so as to attract sales tax in his hands nor was it liable to sales tax at all for the first three months and the cotton purchased on payment of tax was used for the manufacture of cloth which was not liable to sales tax and that a set off could not be allowed merely because a by product or waste product viz acid sludge and cotton waste was sold for a nominal turn over which was subject to tax and that the set off should be split up proportionately and allowed only to a proportionate extent on the basis of the respective 809 turnover of the taxable and non taxable goods and an apportionment of such nature was implicit in a tax law and was also in consonance with the object and purpose of the rules
On behalf of one of the respondents it was contended that under Rule 41 it was not a requirement that the manufactured goods had to be sold by the manufacturing dealer himself and that the sulphuric acid purchased was wholly used in the manufacture of two items kerosene and acid sludge one of which viz the sludge was taxable and also subjected to tax and the amount of set off was specified in the rule itself as the amount of purchase tax paid on the goods so used and could not be scaled down proportionately merely because the turnover of the taxable goods was insignificant
The other respondent adopted these contentions
Dismissing the appeals this Court HELD 11 The assessees are entitled to a set off of the entire tax paid by them on the purchases of sulphuric acid and cotton respectively
The only condition under the rule is that the goods purchased on payment of tax should have been used in the manufacture of taxable goods for sale
Their concurrent user for the manufacture of another item of goods which may or may not be taxable is immaterial though kerosene was also taxable for nine months in the year and yarn was also manufactured and it was subject to tax
Commissioner of Sales Tax vs Burmah Shell Refineries Limited 1978 41 STC 337 referred to 12
The principle of apportionment on the basis of turnovers of various items of goods manufactured and restriction of the quantum of set off to a proportion based on the turnover of taxable goods to the total turnover cannot be accepted
No doubt under the rules situations are conceivable where severance of taxable element is implicit but the type of user in the instant case is a composite one in which it is not possible to correlate any part of the purchased goods as having gone in for the purpose of manufacture of taxable goods
Anglo French Textiles vs CIT  SC Tata Iron  Steel Co vs State  and Best  Co vs CIT  SC distinguished
810 13 In the instant case the entire sulphuric acid purchased has no doubt been used in the manufacture of kerosene though perhaps not a drop of acid clings to the kerosene manufactured
Equally the entire sulphuric acid has gone into the composition of the acid sludge
Having regard to the nature of the interactions in the instant caseit is incontrovertible that the entire sulphuric acid purchased has gone into the manufacture of the sludge
The rules do not require that the purchased goods must have been used only for the manufacture of taxable goods for sale
Therefore it is not possible to cut down the quantum of relief clearly outlined in the rule on the basis of some general principle claimed to underline the provision
14 The basis for the relief provided is not very clear cut
Various reliefs have been provided in a group of rules which come in for application in various situations
The relief may be based on the principle that the manufactured product is taxed either in the hands of the same assessee or in someone else s hands or that the manufactured goods are exported which may yield no tax but earn foreign exchange or even that the purchases are utilised for manufacture of goods in the State thus contributing to the industrial development of the State
It is therefore difficult to read into the provision a quantitative correlation of the goods resulting in a taxable turnover and the purchases of raw materials on which tax has been paid
15 Rule 41 does not contemplate that the goods purchased by the dealer should be used for manufacture of taxable goods for sale by him
No such restriction can be read into this rule
21 Where a subsidiary product is turned out regularly and continuously in the course of a manufacturing business and is also sold regularly from time to time an intention can be attributed to the manufacturer to manufacture and sell the subsidiary product
State of Gujarat vs Raipur Manufacturing Co Ltd 1967 19 STC 1 relied on
22 The assessees in the instant case do purchase sulphuric acid and unginned cotton for use in a manufacturing process which yield not only kerosene and yarncloth but also acid sludge and cotton waste
There is also no evidence to suggest that acid sludge is not a commercial 811 commodity with a market but an item of waste