LPA/1253/2005 1/28 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD LETTERS PATENT APPEAL No. 1253 of 2005 In SPECIAL CIVIL APPLICATION No. 11017 of 2004 With LETTERS PATENT APPEAL No. 1254 of 2005 In SPECIAL CIVIL APPLICATION No. 11623 of 2005 To LETTERS PATENT APPEAL No. 1275 of 2005 In SPECIAL CIVIL APPLICATION No. 11029 of 2004 With CIVIL APPLICATION No. 9392 of 2005 For Approval and Signature: HONOURABLE MS. JUSTICE R.M.DOSHIT HONOURABLE MR.JUSTICE K.M.THAKER ========================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ========================================================= GUJARAT STATE FINANCIAL CORPORATION - Appellant(s) Versus KD PATEL MANAGER (ACCOUNTS SECTION) & 1 - Respondent(s) ========================================================= Appearance : LPA NO. 1253/2005 TO 1264/2005 MR NIRUPAM NANAVATI, SR.ADVOCATE with MR RD DAVE for the Appellant MR MUKUL SINHA for Respondent : 1. MRS VAIJAYANTI PATHAK, AGP for Respondent : 2. LPA NO. 1265/2005 TO 1275/2005 MR NIRUPAM NANAVATI, SR.ADVOCATE with MR RD DAVE for the Appellant MR MUKUL SINHA for Respondent : 1. MS TANUJA KACHCHHI, AGP for Respondent : 2. ========================================================= LPA/1253/2005 2/28 JUDGMENT CORAM : HONOURABLE MS. JUSTICE R.M.DOSHIT and HONOURABLE MR.JUSTICE K.M.THAKER Date : 13/03/2008 :: 14/03/2008 COMMON ORAL JUDGMENT (Per : HONOURABLE MS. JUSTICE R.M.DOSHIT) This group of Appeals arises from the common judgment and order dated 9th September, 2005 passed by the learned Single Judge in the above Special Civil Applications. All these Appeals raise identical issues in similar set of facts. The Appeals are, therefore, heard and decided by this common judgment. The appellant before this Court is Gujarat State Financial Corporation (hereinafter referred to as, “the Corporation”), a statutory corporation established under the State Financial Corporation Act, 1951 (hereinafter referred to as, “the Act of 1951”). The respondent no.1 in each appeal is the former employee of the LPA/1253/2005 3/28 JUDGMENT Corporation who has been retired from service under Regulation 19 of the Gujarat State Financial Corporation (Staff) Regulations, 1961 (hereinafter referred to as, “the Regulations”). The Regulations are framed by the Corporation in exercise of powers conferred by Section 48 of the Act of 1951. The Regulations are thus statutory in nature. Regulation 19 thereof (hereinafter referred to as, “Regulation 19”) provides for superannuation and retirement. The relevant part of Regulation 19 reads as under: “An employee shall retire on his attaining the age of 58 years or on completion of 30 years of service whichever is earlier :- Provided that the Board may at its discretion retain an employee in service after completing 30 years of service or on attaining the age of 58 years by sanctioning from time to extension of such employee's LPA/1253/2005 4/28 JUDGMENT employment for a period not exceeding one year at a time if such an employee is physically and mentally fit, and that such extension of service shall in no case be sanctioned beyond the age of 60 years. Provided further that the Board may after giving three months' previous notice in writing require an employee to retire from the service on the date on which such an employee attains the age of 55 years or on completion of 30 years of service whichever is earlier or any date thereafter to be specified in the notice. An employee may, however, after giving atleast three months' notice in writing to the Managing Director retire from service on the date on which he attains age of 55 years or on completion of 30 years of service whichever is earlier or on any other date to be specified in the notice. Explanation I -- xxx xxx xxx xxx LPA/1253/2005 5/28 JUDGMENT Explanation II -- xxx xxx xxx xxx It is not in dispute that inspite of Regulation 19, the employees of the Corporation were invariably retired from service on attaining the age of 58 years. i.e., in past in no case the employee of the Corporation was retired from service on his completing the service of 30 years before he attained the age of 58 years. It is also not in dispute that the 2nd proviso which empowers the Corporation to retire its employee on his attaining the age of 55 years by giving three months' notice was also never invoked. It was for the first time in case of the employees before us, the respondent no.1 in the above Appeals, that Regulation 19 has been invoked to retire the concerned employee before he attained the age of 58 years either on his completing 30 years of service or on his attaining the age of 55 years. A group of 10 employees, on their completing 30 years of service or on their attaining the age of 55 years, was given notice of retirement on 4th June, 2004. On expiry of LPA/1253/2005 6/28 JUDGMENT notice period, they were retired from service on 8th September, 2004. Similarly, another group of 13 employees was retired from service on 30th June, 2005 after giving them notice of retirement of three months. It was the said action of the Corporation of retiring its employees before they attained the age of 58 years, which was subject matter of challenge before the learned Single Judge. The challenge was two-fold. First, the action of retiring the employees before they attained the age of 58 years was arbitrary and discriminatory in so far as such an action was never taken in past. Second, the concerned employees were retired from service in exercise of power conferred by 2nd proviso to Regulation 19. The said power could be exercised in interest of public alone. The retirement of the concerned employees was not in the interest of public. The respondents also challenged the constitutional validity of the 2nd proviso to Regulation 19 in so far as it empowers the Corporation to retire its LPA/1253/2005 7/28 JUDGMENT employees on their attaining the age of 55 years or on any day thereafter by giving notice of three months. The validity of the said 2nd proviso was challenged on the ground that the said 2nd proviso confers an unguided, unbridled power upon the Corporation to retire its employees before the due date of retirement. Such unguided and unbridled power is capable of misuse and may lead to arbitrary and discriminatory action. Though the validity of the 2nd proviso was challenged before the learned Single Judge, the same has not been dealt with by the learned Single Judge. The learned Single Judge has, however, held that the impugned action of the Corporation in retiring some of its employees as aforesaid was discriminatory and arbitrary and hence, unconstitutional. In view of the said finding, the learned Single has set-aside the action of the Corporation in retiring the concerned employees. The Corporation is directed to reinstate the said employees after they repay the retiral benefits received by them. Therefore, LPA/1253/2005 8/28 JUDGMENT the present Appeals by the Corporation. Mr.Nanavati has appeared for the Corporation. He has assailed the judgment of the learned Single Judge. He has submitted that Regulation 19 lays down the date of retirement of the employees of the Corporation. He has submitted that there are three eventualities in which the Corporation can retire its employees from service. First, on the date the employee completes 30 years of service; second, on the date the employee attains the age of 58 years and; third, on the date the employee attains the age of 55 years whether or not he has completed 30 years of service. He has submitted that in any case where an employee has not been retired on his completing 30 years of service or on his attaining the age of 58 years and is continued in service, even in absence of an express order to that effect, such service should be treated as reemployment. He has submitted that, therefore, the orders of retirement impugned before the learned Single Judge, except the cases where the concerned LPA/1253/2005 9/28 JUDGMENT employee had not completed 30 years of service but was retired on attaining the age of 55 years, were essentially made under the substantive Regulation 19. Those cases where the concerned employee had not completed 30 years of service, yet was retired on his attaining the age of 55 years would be governed by the 2nd proviso to Regulation 19. He has submitted that in the first category of cases the retirement of the concerned employee was an incidence of service and could not be a matter of challenge before a court of law. In the second category of cases, he has submitted that the orders of retirement were made in the interest of administration and for that matter, in public interest. He has submitted that the Corporation has been making heavy losses. The Corporation has stopped all its dealings except the recovery of loan amount. For that purpose, the Corporation needs to maintain a skeletal staff. As the services of the concerned employees were not required, their service was terminated in accordance with Regulation 19. In support of his submissions, he has relied upon the judgment LPA/1253/2005 10/28 JUDGMENT of the Hon'ble Supreme Court in the matter of Ramswaroop Masawan v/s. Municipal Council and another [AIR 1999 SC 705]. The Appeals are contested by Mr.Sinha. He has submitted that it is erroneous to say that Regulation 19 provides for three termini. He has submitted that superannuation is the incidence of service and it can come just once. In the present case, the age of superannuation is the day on which an employee completes 30 years of service or attains the 58 years of age, whichever be the earlier. However, as a matter of practice/convention the Corporation has never retired any employee before he attained the age of 58 years; i.e. in cases where the employee completed 30 years of service before he attained 58 years of age, though Regulation 19 requires that such employee shall retire on his completing 30 years of service such employees are continued in service till they attain the age of 58 years. It is for the first time that the employees, the writ petitioners, have been retired from service LPA/1253/2005 11/28 JUDGMENT before their attaining 58 years of age. The very fact that Regulation 19 has been invoked to retire the employees after completing 30 years of service before they attained 58 years of age is arbitrary and discriminatory. He has further submitted that for retiring an employee on his reaching the statutory age of superannuation, no notice is required to be given. In the present case, each employee had been given a notice of three months, that in itself proves that the impugned orders of retirement were not made under substantive Regulation 19 but were made under the 2nd proviso to Regulation 19. In the submission of Mr.Sinha, the power of premature retirement cannot be exercised to terminate the service of surplus staff. If there is a surplus in the staff and if the strength of the staff is required to be reduced, the only way is to retrench such surplus staff after following the required procedure under the Industrial Disputes Act. The reduction in surplus staff can never be a matter of public interest. LPA/1253/2005 12/28 JUDGMENT Mr.Sinha has submitted that the 2nd proviso to Regulation 19 is unconstitutional. Therefore, any action taken under the said proviso is bad and illegal, requires to be quashed and set-aside. He has further submitted that after the impugned orders were made, no employee of the Corporation has been retired before he completed 58 years of age. The subsequent action of the Corporation also proves that the Corporation has singled out the concerned respondents to retire them on attaining 55 years of age, before the due date of retirement. He has also submitted that the impugned orders have to be examined in the circumstances that prevailed on the date of the orders. The said orders cannot be justified by subsequent action of the Corporation or the explanation given in reply to the writ petitions. In support of his submissions, Mr.Sinha has relied upon the judgments of the Hon'ble Supreme LPA/1253/2005 13/28 JUDGMENT Court in the matters of N.C.Dalwadi v/s. State of Gujarat [AIR 1987 SC 1933]; of Brij Mohan Singh Chopra v/s. State of Punjab [AIR 1987 SC 948]; of Union of India and others v/s. Shaik Ali [AIR 1990 SC 450]; of Senior Supdt. Of Post Office and others v/s. Izhar Hussain [AIR 1989 SC 2262]; of State of Gujarat v/s. Umedbhai M.Patel [2001(3) GLR 2461]; of Chandra Singh and others v/s. State of Rajasthan and another [(2003)6 SCC 545]; of Yeshwant Singh Kothari v/s. State Bank of Indore and others [1993 Supp.(2) SCC 592] and of Rajat Baran Roy and others v/s. State of W.B. And others [(1999)4 SCC 235]. He has also relied upon the judgment of the Allahabad High Court in the matter of Dr.Rajkumar Misra and others v/s. State of U.P. and others [1998(56) IF&LR 36]. 14/03/2008 In the matter of Ramswaroop Masawan (supra), the Hon'ble Supreme Court held that the continuance of appellant in service after the date of superannuation should be treated as LPA/1253/2005 14/28 JUDGMENT reemployment. The appellant was not entitled to the advanced age of superannuation introduced during the continuance of his service after the date of superannuation. In the above referred matters of Brij Mohan Singh Chopra and Umedbhai M.Patel, the Hon'ble Supreme Court has reiterated the general principles which govern the premature retirement of Government servants. It is held that such provision is necessitated to chop off dead wood or to weed out inefficient, corrupt or dishonest servants. In the matter of Izhar Hussain (supra), the Hon'ble Supreme Court held that the rule conferring absolute discretion upon the postal authority to retire an employee prematurely was capable of being used arbitrarily. The rule in question was held to be unconstitutional. In the matter of Yeshwant Singh Kothari (supra), the Hon'ble Supreme Court held that the LPA/1253/2005 15/28 JUDGMENT rule imposing a date of compulsory retirement after completion of 30 years' service or on attaining the age of 58 years was not discriminatory. In the matter of Chandra Singh and others (supra), though the Hon'ble Supreme Court upheld the action of the respondent State Government in retiring the appellants from service, the Court observed that, “...It may be true that mentioning of a wrong provision or omission to mention the correct provision would not invalidate an order so long as the power exists under any provision of law, as was submitted by Mr.Rao. But the said principles cannot be applied in the instant case as the said provisions operate in two different fields requiring compliance with different prerequisites.” Similar is the view in the matter of Shaik Ali (supra). In the matter of Dr.Rajkumar Misra and others (supra), the Allahabad High Court has held that LPA/1253/2005 16/28 JUDGMENT “...Financial crisis of the Government or a public body or ex-economic difficulty cannot, therefore, furnish material for retiring an employee under this rule. That may well entitle abolition of posts, in good faith.” We are unable to agree with Mr.Nanavati that Regulation 19 provides for three different termini for the employees of the Corporation. Indisputably, the retirement on reaching the age of superannuation is a condition of service, so it is for the employees of the Corporation. Ordinarily the date of superannuation is and has to be a definite date, generally the attainment of a certain age. In case of the Corporation, the criterion is not the attainment of the age but the length of service i.e. 30 years of service rendered after attaining the age of 21 years but not later than attainment of the age of 58 years. Thus the date of superannuation of the employee of the Corporation is a definite date i.e. the date on which the concerned employee completes 30 years of service or attains the age of 58 years, LPA/1253/2005 17/28 JUDGMENT whichever be the earlier. In other words, if an employee attains the age of 58 years before he completes the service of 30 years, he would retire on attaining the age of 58 years and will have no right to continue in service till he completes 30 years of service. The first proviso to Regulation 19 empowers the Corporation to extend the service of its employees after he completes 30 years of service or attains the age of 58 years but not beyond the age of 60 years. The first proviso confers a discretion upon the Corporation to extend the service of its employees but does not confer a corresponding right upon the employee to claim such extension. In our opinion, if at all the service of an employee is intended to be extended in exercise of the powers conferred by the first proviso, the Corporation is required to give its active consideration and make a specific order. The 2nd proviso to Regulation 19, inter alia, confers power upon the Corporation to retire its LPA/1253/2005 18/28 JUDGMENT employee on his attaining the age of 55 years or on completion of 30 years of service whichever is earlier or on any date thereafter after giving three months previous notice in writing. In our opinion, the reference to completion of 30 years in this proviso is otiose in as much as completion of 30 years of service is the date of compulsory retirement under the substantive Regulation 19. Such retirement would not amount to premature retirement or unexpected curtailment of the service. In other words, this proviso can be invoked to curtail the service of the employee of the Corporation on his attaining the age of 55 years before he reaches the age of superannuation under the substantive Regulation 19 i.e. before he completes 30 years of service. As recorded hereinabove, the Regulations are framed in exercise of power conferred by Section 48 of the Act of 1951 i.e. they are statutory in nature; they are binding to the Corporation and its employees with equal force. The substantive provision under Regulation 19 makes it compulsory LPA/1253/2005 19/28 JUDGMENT for the employee of the Corporation to retire after completion of 30 years of service. It is a binding provision. Unless the Corporation exercises discretion to extend the service of an employee after he completes 30 years of service, the employee concerned has to retire. Such an employee will have no right to claim extension or continuance in service after he completes 30 years of service. True, the said provision has not been complied with in past. That only displays lack of regard/respect for the statutory regulations framed by the Corporation. No wonder the Corporation is on the verge of closure. The learned Single Judge has held that since the said regulation has not been implemented/invoked thus far, it cannot now be implemented or its implementation now would amount to discrimination amongst the employees of the Corporation. We beg to defer from the view expressed by the learned Single Judge. We have recorded hereinabove and we reiterate that the regulations are statutory and LPA/1253/2005 20/28 JUDGMENT are binding. The implementation of the regulations is mandatory and not a matter of discretion. If the Corporation has roused from its slumber at a belated stage and it has now started to implement the binding Regulations, we will not call it an arbitrary action. We, therefore, hold that the action of the Corporation in retiring the concerned respondents who had completed 30 years of service was in consonance with Regulation 19 and cannot be questioned. It may, however, be noted that in the present set of matters the concerned respondents had not been retired on the date they completed 30 years of service as they ought to have been in compliance with Regulation 19. In our view, the Corporation has indeed made delay in implementing Regulation 19. But, merely because such employees were continued in service beyond the due date of superannuation, in absence of an express order extending their service, such employees did not have a right to continue in service once they had reached the age of superannuation. The fact that they were retired from service after giving LPA/1253/2005 21/28 JUDGMENT notice of three months as envisaged by the 2nd proviso of Regulation 19 was, in our opinion, of no consequence. Retirement on completion of 30 years' service is compulsory. The retirement of concerned respondents who had completed 30 years' service was under substantive Regulation 19 and not under the 2nd proviso to Regulation 19 as urged by Mr.Sinha. We do agree that the 2nd proviso to Regulation 19 does not incorporate into itself the criteria on which or the circumstances in which the said 2nd proviso may be invoked. But, should that in itself render the said 2nd proviso unconstitutional and invalid; cannot the said 2nd proviso be read down, as it has been done in case of many a legislative enactment, to read “public interest” in it to make it constitutionally valid. We believe that can be done. We, therefore, hold that the Corporation is authorised to invoke the 2nd proviso to Regulation 19 if it is of the opinion that in the interest of public it is required to curtail the service LPA/1253/2005 22/28 JUDGMENT of any of its employees before he reaches the age of superannuation, i.e. before he completes 30 years of service and before he attains the age of 58 years. If the public interest warrants, the Corporation can invoke the power conferred by the 2nd proviso to Regulation 19 and retire its employee on his attaining the age of 55 years after giving him three months' notice. This brings us to the last question, whether on the facts of the present case the action of the Corporation in retiring its employees, the concerned respondents on their attaining the age of 55 years, before the due date of superannuation, after giving them notice of retirement of three months was valid or not or was in public interest or not. In answer to the petitions, the Corporation has made counter affidavit. It is stated that the Corporation is established and is engaged in financing the entrepreneurs in the State of Gujarat to ensure an overall industrial growth in LPA/1253/2005 23/28 JUDGMENT the State of Gujarat. For various reasons beyond the control of the Corporation, the repayment by the industrial units has been adversely affected. The Corporation is unable to make recovery. A large number of industrial units are declared “non-performance assets”. As a result, the Corporation has suffered heavy loss. By 31st March, 2004 the accumulated losses had risen to Rs.734.58 crores. In the circumstances the Corporation itself required financial restructuring, several measures were taken towards it. The Corporation has stopped extending finance to the new loanees since the year 2001. The only activity now the Corporation carries on is the recovery of its outstanding dues from the concerned borrowers. In the year 2003 the Corporation had also offered voluntary retirement scheme for its employees to overcome the problem of surplus staff. However, not many of its employees availed of or accepted the said offer. The employees before this Court, the concerned respondents are those employees who did not accept the offer of voluntary retirement. The LPA/1253/2005 24/28 JUDGMENT Corporation was, therefore, required to take drastic measures to reduce its establishment cost with a view to reducing its financial burden. In furtherance of its decision to reduce the financial burden, the Corporation decided to terminate the service of the surplus staff by invoking the power conferred by the 2nd proviso to Regulation 19. Thus, the service of the employees who attained the age of 55 years was terminated by giving them notice of retirement of three months as envisaged by