IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. CWP No. 12820 of 1999 Date of Decision: October 1, 2010 The Jullundur District Co-operative Agricultural Service Societies Employees Union (Regd.) …Petitioner Versus State of Punjab and others …Respondents CORAM: HON'BLE MR. JUSTICE M.M. KUMAR HON’BLE MR. JUSTICE A.N. JINDAL Present: Mr. G.C. Dhuriwala, Advocate, Mr. R.K. Sharma, Advocate, Mr. M.S. Bedi, Advocate, Mr. K.K. Singla, Advocate, Mr. Anupam Bhardwaj, Advocate, Mr. S.K. Dhawan, Advocate, for the petitioner(s). Mr. Suvir Sehgal, Additional Advocate General, Punjab, for the respondents. 1. To be referred to the Reporters or not? 2. Whether the judgment should be reported in the Digest? M.M. KUMAR, J. This order shall dispose of a bunch of 8 petitions2 because common facts and questions of law are involved therein. However, the facts are being referred from CWP No. 12820 of 1999. 2. The Jullundur District Co-operative Agricultural Service Societies Employees Union (Regd.)[for brevity, ‘the Union’] has filed the aforementioned petition under Article 226 of the Constitution challenging the action of the respondents for restricting the payment of salary to the employees CWP No. 12820 of 1999 and connected petitions at 75% of the net profit of the Cooperative Agricultural Service Societies (for brevity, ‘the Society(s)’. The petitioner Union has sought quashing of letters dated 22.4.1999, 3.12.1998, 3.6.1999 and 18.5.1999 (P-7 to P-10) on the ground that the service conditions regarding grant of pay-scales and other service benefits of the employees working in the Society(s) in the State of Punjab have been changed in an illegal, arbitrary and mala fide manner, which is contrary to the Punjab State Co-operative Agricultural Service Societies Service Rules, 1997 (for brevity, ‘the 1997 Rules’). Further a mandamus has been sought directing the respondents to allow the employees of the Society(s) to continue to draw the regular pay-scale and other benefits as provided by the Rules. 3. Broadly speaking the Society(s) in the State of Punjab, have employed primarily the following categories of employees – (a) Secretary; (b) Salesmen/Cashier; and (c) Peon-cum-Chowkidar. These employees are being paid salaries and other allowances by the respective Society(s) and there is no financial liability on the State exchequer. Their main function is to provide Fertilizers, Pesticides etc. as also to advance loans to the farmers and in turn they get marginal commission/interest. In other words, the commission and interest is the main source of income of these Society(s) out of which the employees are paid salaries. 4. Under Rule 28 of the Punjab State Co-operative Societies Rules, 1963 (for brevity, ‘the 1963 Rules’), the Registrar, Co-operative Societies, Punjab-respondent No. 2 has been empowered to frame Rules regarding qualifications and conditions of service of the employees of the Society(s). In exercise of the said power, respondent No. 2 initially framed the Rules, known as ‘the Punjab State Co-operative Agricultural Service Society Service Rules, 1979 (for brevity, ‘the 1979 Rules’), which were notified on 29.5.1979. Rule 2 CWP No. 12820 of 1999 and connected petitions 3 and 5 of the 1979 Rules deals with the strength of service and scales of pay. 5. On 17.11.1986, the Registrar-respondent No. 2 notified the Rules, known as ‘the Punjab State Co-operative Agricultural Service Societies Service Rules, 1986 (for brevity, ‘the 1986 Rules’), which came into force w.e.f. 18.11.1986. Rule 7 of the 1986 Rules prescribed the pattern of staffing, emoluments and incentives in the Society(s). Annexure A to Rule 7 of the 1986 Rules further prescribes the scales of pay. 6. The Registrar-respondent No. 2 constituted a Committee under the chairmanship of Additional Registrar (Credit), Co-operative Societies, Punjab, to review the Service Rules of the employees of the Society(s). On the basis of the report submitted by the said Committee and in exercise of the power under Rule 28 of the 1963 Rules, the Service Rules of the employees of the Society(s) were reframed by the Registrar-respondent No. 2 and the 1986 Rules were repealed by the 1997 Rules w.e.f. 9.10.1997. As per Rule 7 of the 1997 Rules, which deals with the pattern of staffing, emoluments and incentives, members of the service are required to be paid dearness allowance and all other allowances on the pattern of the State Government. Rule 7 along with Annexure A of the 1997 Rules reads thus:- “7. PATTERN OF STAFFING, EMOLUMENTS, AND INCENTIVES: i) The categories of the societies on functional basis, staff strength approved for them and scales of pay of each category of the employees shall be as per Annexure “A” to this rule; ii) The members of the service shall be paid dearness allowance and other allowances on the pattern of the State Government; iii) The total expenditure on staff should ordinarily not exceed 3 CWP No. 12820 of 1999 and connected petitions 60% of the annual gross income of the Society; The emoluments already being drawn by an employee by way of pay and dearness allowances over and above the scale fixed under these rules shall be protected for the purpose of fixation of pay and any amount drawn over and above the grade shall be treated as personal pay which shall be set off in future increments.” ANNEXURE “A” to Rule 7 of the 1997 Rules: Sr. No. Category of Societies Staff Strength Scale of pay A) Societies having an average loan outstanding against members of 40.00 lakhs and above or having average loan outstanding against members and deposit collectively to the tune of Rs. 80.00 lakhs and having annual gross income of Rs. 2.00 lakhs. Secretary/ 1 Manager. Salesman/ 2 Cashier Peon-cum- Chowkidar. 1200-30- 1560-40- 1800 950-25- 1200/30- 1500 750-20/ 950-25/ 1200- 30/1350 B) Societies having an average loan outstanding above Rs. 25.00 lakhs or having average loan outstanding against members and deposit collectively to the tune of Rs. 50.00 lakhs and having annual gross income of Rs. 1.50 lakhs. Secretary 1 Salesman 1 Peon-cum- Chowkidar 1 950-25- 1200/30- 1500 950-20- 1200/25- 1350 750-20/ 950-25/ 1200- 30/1350 C) Societies having an average loan outstanding upto Rs. 25.00 lakhs or having average loan outstanding against members and deposit collectively to the tune of Rs. 50.00 lakhs and having annual gross income of Rs. 1.00 lakhs Secretary 1 Peon-cum- Chowkidar 1 950-25- 1200-30- 1500 750-20/ 950-25- 1200- 30/1350 4 CWP No. 12820 of 1999 and connected petitions Note to the annexure:- 1) The base year for determining the staff strength and the payment of the dearness allowance shall be preceding cooperative year; 2) The short term Agricultural loans converted into Medium Term Agri. Loans due to natural calamities in the Co- operative year shall not be included in annual average loans out-standing; 3) Master scale as applicable in the case of Government employees will be applicable to the above mentioned employees henceforth.” 7. A perusal of Rule 7 of the 1997 Rules would show that DA and all other allowances are required to be paid on the pattern of the State Government. It is also clarified that total expenditure should not ordinarily exceeds 60% of the annual gross income of the Society. The emoluments being drawn by an employee by way of pay and Dearness Allowance over and above the pay scales fixed under the Rules are protected. Master scale which is applicable to the Punjab Government employees was to apply to them. 8. On the basis of the recommendations of the 4th Pay Commission, on 16.1.1998 the State of Punjab notified the Rules known as ‘the Punjab Civil Services (Revised Pay) Rules, 1998’, which came into force w.e.f. 1.1.1996. By the said Rules the pay scales of the Punjab Government employees were revised w.e.f. 1.1.1996. On 21.5.1998, the pay scales mentioned in Annexure ‘A’ to Rule 7 of the 1997 Rules were also substituted by the revised scales of pay by the Registrar-respondent No. 2. However, the said revision was made applicable w.e.f. 1.4.1998 instead of 1.1.1996 and no arrears regarding fixation of pay were to be paid prior to 1.4.1998 to the members of the Service (P-3). 5 CWP No. 12820 of 1999 and connected petitions 9. On 3.12.1998 (P-8), the Registrar-respondent No. 2 issued instructions regarding distribution of pay upto 7th of each month to the employees working in the Society(s). The said instructions read as under:- “ On the subject cited above, the instructions are issued that the pay of the employees working in Co-operative Agricultural Service Societies be paid regularly and in this regard a separate saving bank account be maintained and 75% commission of the society should be deposited and the salary should be paid to the employees by 7th of each month. The salary should be given from this account on half yearly basis and in case the balance is not sufficient in that account to meet the salary, the amount should be arranged from the bank and the account be reconciled with the bank within six months after the proceeds of six monthly crops start coming. In case this is not possible and the Society is running in losses, the salaries of employees of such societies should not be given above 10 months. After adjusting the expenditure of the society, the salary should be distributed from the 75% of the net profit of the society (the salary of the employees should not exceed 75% of the net profit of the Society). These instructions be complied accordingly.” 10. From a bare perusal of the said instructions it is clearly spelled out that the total salary of the employees working in the Society(s) in the State of Punjab were not to exceed 75% of the net profit of the Society(s) and the salaries were to be paid on half yearly basis. In case the Society is running in losses, the employees were not to be paid salaries exceeding 10 months. This is contrary to the service rules of 1997 where it is laid down that 60% of 6 CWP No. 12820 of 1999 and connected petitions annual gross profit may be spent on salary. 11. On 17.12.1998, the Registrar-respondent No. 2 after consideration of the matter regarding re-viability of distribution system of essential commodities in the Society(s), passed an order for obtaining options of the Salesmen working in the Society(s) in the State of Punjab as to whether they are willing to work on Commission/retainership basis and in case they are not interested to work under the new scheme, the concerned Society was competent to take appropriate action against them (P-4). In furtherance to the order dated 17.12.1998, another letter dated 25.1.1999 was issued by the Assistant Registrar, Co-operative Societies, Ludhiana, inter alia, directing all the Secretaries of the Society(s) in the Region that the services of those Salesmen who were un-willing to work on Commission/retainership basis be dispensed with (P-5). On 22.4.1999, the Registrar-respondent No. 2 issued yet another letter to all the Assistant Registrars, Co-operative Societies in the field stating therein that the Salesman be appointed on Commission/retainership basis and in case they are not interested to work, the Society would be at liberty to take appropriate steps against them (P-7). Letters dated 17.12.1998 and 25.1.1999 (P-4 & P-5) were challenged by way filing CWP No. 3201 of 1999 in this Court. In the said petition, the Registrar-respondent No. 2 filed a written statement stating that the letter dated 25.1.1999 has been withdrawn on 4.5.1999. Accordingly, the said writ petition was disposed of as having been rendered infructuous. 12. On 18.5.1999 (P-10), the Registrar-respondent No. 2 formulated an Incentive Scheme-1999 for the employees of the Society(s). In this regard, rules known as ‘the Punjab Co-operative Service Societies Employees Incentive Rules, 1999’ were framed under the 1997 Rules. As per Rule 4(v) of the 1ncentive Rules, only those Society(s) who were in profit without any 7 CWP No. 12820 of 1999 and connected petitions accumulated losses were eligible for the Incentive Scheme-1999. It has been further provided in the said rule that the overall expenditure including incentive pay and other charges would not increase beyond 75% of the net profit. 13. On 3.6.1999 (P-9), the Registrar-respondent No. 2 issued another letter amending Rule 19(b) of the 1997 Rules, which reads thus:- “ In the Rule 19(b) of the Punjab State Co-operative Agricultural Service Societies Service Rules, 1997, the following amendment is being made:- 19(b) An employee shall be entitled to death-cum- retirement gratuity on account of death while in the service of the Society or on retirement as admissible to Govt. employees subject to the Rider that all the benefits extended to the employees including Gratuity may not exceed 75% of profit of the Society. Note: Deleted. This issues with the concurrence of RCS.” 14. It is claimed by the petitioner Union that the aforementioned amendment is illegal, arbitrary and mala fide because if a particular employee who has retired after rendering more than 25 years of service and in the year of retirement if there is no profit earned by the concerned Society then such an employee would not get any gratuity etc. even though in the long service tenure he might have worked hard and the Society might have earned good profit. On the contrary there is possibility that in the case of another employee who retired from service in the subsequent year when the society earns more profit then such an employee would get gratuity and all other benefits though he may be having smaller period of service than the employee who retired in 8 CWP No. 12820 of 1999 and connected petitions the earlier year in which there was no profit in the Society. 15. In pursuance of letter dated 3.12.1998 (P-8), the Assistant Registrar, Co-operative Societies, Nakodar, issued a letter dated 7.7.1999 to the President and all Committee Members of Sahree Co-operative Agricultural Service Society Limited, Sarhee, directing them to effect recovery on account of paying excess salary to the employees over and above 75% net profit of the Society. They were also impressed upon for placing the Salesmen (Essential Commodities) on commission/retainership basis otherwise action under Section 22(1) of the Punjab Co-operative Societies Act, 1961 (for brevity, ‘the Act’), was to be taken against them (P-11). It is alleged that similar letters were also issued by the respective Assistant Registrars to various Societies. 16. In the backdrop of the above factual matrix the instant petition as well as other connected petitions have been filed alleging that the action of the Registrar, Co-operative Societies, Punjab-respondent No. 2 amounts to change of service conditions of the employees working in various Society(s) in the State of Punjab, without actually amending the statutory 1997 Rules which governs their conditions of service. 17. In the written statement filed on behalf of the respondents, at the outset a preliminary objection has been raised that the petitioner Union has not exhausted the remedy of revision provided under Section 69 of the Act, therefore, the writ petition is not maintainable. Justifying the impugned letters issued by the Registrar-respondent No. 2 it has been asserted that under Rule 28 of the 1963 Rules, the Registrar of Cooperative Societies Punjab is empowered to frame rules regarding the conditions of service of the employees of the Society(s). According to the respondents, the Registrar is also competent to amend the rules subsequently by various circulars/letters based on the wholesome principle that the diligent and hard working staff is not 9 CWP No. 12820 of 1999 and connected petitions exploited and suitably rewarded for the services rendered, whereas the unscrupulous and lazy staff is curbed. If a society is continuously suffering losses, it cannot run for a long time and allowing it to run for a long time would also not be profitable and possible. It has been submitted that the 1997 Rules initially provided that the total expenditure on staff should ordinarily not exceed 60% of the annual gross income of the Society. However, the said rule was amended by the Registrar-respondent No. 2 vide circular No. Credit/CA- 5/368, dated 7.5.1998 and the cap of 60% in respect of the expenditure on the staff of the Society(s) was raised to 75% of the annual income of the Society(s) (R-1). It has also been pointed out that the amendment in the service rules in respect of gratuity etc., issued vide letter dated 3.6.1999 (P-9), has been made on a representation of the Union of the Employees of the Society(s) in the State of Punjab. The petitioners are members of the said Employees Union, thus, they cannot object to the demand made by the Union. In para 23 of the reply on merit, it has been stated that the service conditions of the employees of the Society(s) in the State of Punjab are not governed by any statutory rules but are governed by the rules framed by the Registrar-respondent No. 2 under Rule 28 of the 1963 Rules. These rules are in the nature of executive instructions issued by the Registrar and it is within his competence to modify/amend the service rules of the employees. Therefore, nothing wrong has been committed by him. 18. We have heard learned counsel at a considerable length and have perused the record with their assistance. 19. On the basis of the pleadings, arguments and record we find that the following questions of law would arise for determination of this Court: 1. Whether the impugned letters reducing the pay scales or co- relating the pay of the employees to the profit of the Society as 10 CWP No. 12820 of 1999 and connected petitions against fix salary in accordance with the pay scale stipulated in the rules is permissible by issuance of letters by the Registrar? 2. Whether the action of the Registrar is punitive in nature and, therefore, impermissible in law? 3. Whether converting the tenure of service of a Salesman retiring him at the age of 60 in accordance with Rule 19 of the 1997 Rules to that of unsalaried employee by paying commission on the sale transaction effected by him is permissible? RE: QUESTION NOS. 1 AND 2 20. We have already noticed in the preceding paras Rule 7 of the 1997 Rules and Annexure ‘A’ appended to that Rule. The posts of Secretary/Manager, Salesman/Cashier and Peon-cum-Chowkidar have been shown to carry specified scales of pay. On the enforcement of the Revised Pay Rules in the year 1998 w.e.f. 1.1.1996, the aforesaid pay scales were also revised although no arrears after fixation of pay were to be paid in respect of the period prior to 1.4.1998. However, the Registrar-respondent No. 2 issued a series of letters containing the instructions by linking the pay of the employees of the Society(s) to the profit earned by them. For example, on 3.12.1998 the Registrar addressed a letter to the Joint Registrars, Deputy Registrars and Assistant Registrars of all the Co-operative Societies (P-8). The contents of the aforesaid letter in extenso have already been noticed in para 8 above and a perusal of the same shows that employees of every Society are required to be paid their salary by 7th of each month. However, in case the Society is running in losses then the employees are to be paid salary not over and above ten months and the salary is to be distributed to the extent of 75% of the net profit earned by the Society. Obviously, it has resulted in reduction of the salary which is linked with the scale of pay as determined by the expert body like the 11 CWP No. 12820 of 1999 and connected petitions Pay Commission, which analyse various factors before recommending the revision. The analysis of the Pay Commission is ordinarily based on consumer price index. The consumer price index is an estimation of percentage of increase in the prices so as to correlate the value of money depreciated in terms of currency. The prices have hardly ever come down but have always registered a rising trend. Therefore, reduction of pay in such a fashion by the Registrar-respondent No. 2 is not healthy. 21. The Registrar-respondent No. 2 also addressed a letter dated 3.6.1999 (P-9). It seeks to amend Rule 19(b) of the 1997 Rules, which has already been noticed in preceding para 11. It may be true that the Registrar has been delegated power to frame qualifications and conditions of service of employees of the Society(s). In fact, Section 85 of the Act vests the State Government with the power to make rules to carry out the purposes of the Act. The relevant provision of Section 85 of the Act reads thus: “85. Rules. (1) The Government may, for any co-operative society or class of such societies, make rules to carry out the purposes of this Act. (2) In particular, and without prejudice to the generality of the foregoing power, such rules may provide for all or any of the following matters, namely:- (i) to (xxxvii) xxx xxx xxx (xxxviii) qualifications for members of the committee and employee of a society or class of societies and the conditions of service subject to which persons may be employed by societies;” 22. In pursuance of the aforesaid power the State Government has framed the 1963 Rules. Rule 28 of the 1963 Rules stipulates the qualifications and conditions of service of employees. The aforesaid letters assume to have 12 CWP No. 12820 of 1999 and connected petitions been written in pursuance of power vested with the Registrar by Rule 28 of the 1963 Rules. Rule 28 of the 1963 Rules reads as under:- “28. Qualifications and conditions of service of employees. [Section 85(xxxviii)] – (1) The qualifications and conditions of service subject to which any person may be employed by a co- operative society or a class of co-operative societies shall be such as may be determined by the Registrar from time to time. (2) Where the Registrar is of the opinion that it is necessary or expedient so to do, he may by order, for reasons to be recorded in writing relax the provisions of this rule with respect to any co-operative society or class of co-operative societies to such extent as he may consider proper.” 23. A perusal of the aforesaid Rule shows that qualifications and conditions of service of an employee of the Society are as may be determined by the Registrar. The conditions of service have been determined by the 1997 Rules and for various categories of employees working in the Society(s), posts of Secretary/Manager, Salesman/Cashier, Peon-cum-Chowkidar etc. have been shown to carry a specific pay scale. As against the aforesaid statutory Rules, the Registrar has started exercising power by issuing letters. It is highly doubtful whether by executive instructions of this nature any statutory rule could be altered. According to the stand taken by the respondents in the written statement, letters are in the nature of executive instructions. It is well settled that executive instructions cannot alter the rules or could be contrary to such rules. It is well settled that statutory rules cannot be supplanted by executive instructions and run contrary to the rules. In that regard reliance may be placed on the judgment of Hon’ble the Supreme Court rendered in the case of State of Maharashtra v. Jagannath Achyut Karandikar, AIR 1989 13 CWP No. 12820 of 1999 and connected petitions SC 1133. Therefore, the letters dated 3.12.1998 and 3.6.1999 (P-8 and P-9) are not sustainable. 24. Even if it is presumed that letter dated 3.6.1999 (P-9) amounts to exercising the power of amendment and Rule 19(b) of the 1997 Rules has been amended, still it would not be sustainable because no rule could be framed or executive instructions be issued reducing the pay of an employee particularly when under the 1997 Rules it is considered as penal action. Rule 14 of the 1997 Rules postulate infliction of minor and major punishments. Under both the heads, reduction in emoluments, stoppage of increments and recovery of pecuniary loss are some of the punishments. Therefore, any instruction issued or rule made to the detriment of employees and against their interests causing loss of salary would be considered arbitrary and