Case: V.T. Khanzode and Others Vs. Reserve Bank of India and Another

The facts leading upon the impugned decision dated January 7, 1978, the office or der dated April 27, 1978, and the draft combined seniority list are as follows: The Reserve Bank of India (Respondent No. 1) was established underthe Reserve Bank of India Act, 1934, hereinafter referred to as "the Act". Under the Rese rve Bank of India (Staff) Regulations, 1948 framed under section 58 of the Act, the terms and conditions of service of the staff (including officers) of the respondent Bank were revised and regulated. These Regulations were amended from ti me to time. Provisions regarding record of service, seniority and promotion are contained in Regulations 27 to 30 (Chapter III), which readRecord of Service: A record of service shall be maintained by the Bank in resp ect of each employee at such place or places and shall be kept in such form and shall contain such information as may be specified from time to time by the Chiefsince the date of the Staff Regulations of 1948 and even prior thereto, there were "groups" constituted for the different departments of the Reserve Bank, and officers were required to exercise irrevocable options for service in any particular Group. Those who had opted for a service in a particular Group were to be normally eligible for promotion in that Group only. The grouping was revised with effect from April, 1951 when employees were asked to exercise their option with regard to the Group of their choice. In 1951, the various departments of the Bank were re-classified into three Groups, Group I, Group I I and Group III. This system of grouping continued until 1955, in which year the Bank found it necessary to reorganise the Agricultural Credit Department. Accordingly, the staff attached to the various departments were regrouped into Groups I, II, III and IV, with effect from April 1, 1957. In each of these Groups, there are six grades of officers based on pay scales, namely, Grades A, B, C, D, E and F, the lowest being Grade A and the highest being Grade F. Each Group had its own seniority List, that is to say, there were four separate seniority lists, one for each group. The latest of such lists, prior to the impugned combined seniority list, is dated July 1, 1976.The Reserve Bank had constituted a C adre Review Committee in 1970, comprising Shri Justice J.L. Nain, then a sitting Judge of the Bombay High Court, Shri V. Isvaran, I.C.S. (Retd.) and Prof. N.S. Ramaswamy, a Management Expert. The Committee submitted a report in October 1972, on the basis of which the Bank issued Administration Circular No. 15, dated May 22, 1974, specifying the decisions taken by it in the light of the recommendations made by the Committee. One such decision which the Bank took was to prepare a c ommon seniority list for and to provide for inter group mobility at the lowest level officers in each group, namely, Grade A officers, including those who were promoted to Grade B on or after January 1, 1970. With regard to higher grades (includin g officers in Grade promoted prior to January 1, 1970), the Bank decided to retain the "group-wise seniority as at present". The inter-group mobility in Grades C and D was to be introduced only to a limited extent, namely, "on a swap basis": It was first to be introduced in Grade C and thereafter to be extended "in due course" to the officers in Grade D. The two higher Grades viz. Grades E and F were left untouched and no intention was expressed in the above circular to introduce either combi ned seniority or any scheme for inter-mobility in these grades. In accordance with the decisions expressed in the aforesaid circular dated May 22, 1974, the Bank published separate seniority lists of officers in Grade B and above for the years 197 4, 1975 and 1976. The petitioners, all of whom are officers in Group I, were given their due seniority as of July 1,the impugned Administration Circular No. 8, dated January 7, 1978, the Bank stated that it had decided to combine th e seniority of all officers on the basis of their total length of service including officiating service) in Group I (Section A), Group II and Group III. The seniority of all officers in each of the three Groups was to be combined with effect f rom May 22, 1974 on the basis of their total length of service, including officiating service, in the grade in which they were then posted on a regular basis. The Circular introduced combined seniority with retrospective effect from May 22, 1974 (the date of Administration Circular No. 15) as it was "fair and equitable to the officers as a class".Briefly stated, the effect of this decisions is that the group-wise system of seniority which was in existence for mor e than 27 years stands substituted by a combined seniority for officers in Group I (Grade A) and in Groups II and III with retrospective effect. That has adversely affected the existing seniority of officers, particularly of those in Group I, w ho are now placed many places below their existing position of seniority, some by several hundred places.

Court's reasoning:
Section 58 (1) of the Act confers power on the Central Board of Directors of the Bank to make regulations in order to provide for all matters for which provisions is necessary or c onvenient for the purpose of giving effect to the provisions of the Act. It seems to us clear that it is not only convenient but manifestly necessary to provide for the service conditions of the Banks staff in order to give effect to the p rovisions of the Act. The Act was passed in order to constitute a Bank for achieving economic purposes of the highest national importance: regulating the issue of Bank notes, keeping reserves with a view to securing monetary stability in Indi a and generally to operate the currency and credit system of the country to its advantage. It is, in our view, not open to any question either on the basis of reason or authority that the power to provide for service conditions of the staff is at least incidental to the obligation to carry out the purposes for which the Bank was constituted. As observed in Armour v. Liverpool Corporation, (1) "To assist in removing from the minds of its employees the fear of an unprotected o ld age, to foster their happiness and contentment and to procure their good and efficient service, these are objects which, even if economic considerations alone count, are incidental, if not vital, to the proper carrying on of any undertaking as well by a municipal as any other corporation." The doctrine of ultra vires in relation to the powers of a statutory corporation has to be understood reasonably and so understood, "whatever may fairly be regarded as incidental to, or consequential upon, those things which the Legislature has authorised ought not (unless expressly prohibited) to be held by judicial construction, to be ultra vires." (See Attorney-General v. Great Eastern Ry. Co.(2) The Central Boa rd has, therefore, the power to make service regulations under section 58 (1) of the Act.Shri Nariman pleads for such a power but his purpose in doing so is to urge that section 58 (7) is the sole repository of the power of the Central Boar d to provide for the conditions of service of the Banks staff. He contends that statutory corporations like the Reserve Bank of India have no inherent or residuary powers and that they must seek and find their powers and obligations in the Charter of their creation Therefore, the argument proceeds, it is imperative that regulations governing terms and conditions of service of the Banks staff must be framed under section 58 (1) only and cannot be framed by administrative circulars issued in the exercise of any non-statutory poweris no doubt that a statutory corporation can do only such acts as are authorised by the statute creati ng it and that, the powers of such a corporation cannot extend beyond what the statute provides expressly or by necessary implication. If an act is neither expressly or impliedly authorised by the statute which creates the corporation, it mu st be taken to be prohibited. This cannot, however, produce the result for which Shri Nariman contends. His contention is not that the Central Board has no power to frame staff regulations but that it must do so under section 58 (1) only. On that argument, it is material to note that section 58 (1) is in the nature of an enabling provision under which the Central Board "may" make regulations in order to provide for all matters for which it is necessary or convenient to make pr ovision for the purpose of giving effect to the provisions of the Act. This provision does not justify the argument that staff regulations must be framed under it or not at all. The substance of the matter is that the Central Board has the power to frame regulations relating to the conditions of service of the Banks staff. If it has that power, it may exercise it either in accordance with section 58 (1) or by acting appropriately in the exercise of its general power of administration andconsidered the entire material on this subject including the correspondence t hat has transpired between the Reserve Bank and the Central Government, we find it difficult to take the view that the Staff Regulations of 1948 were framed in the exercise of power conferred by section 58. One fact which stands out in t his regard is that whereas section 58 (1) envisages the making of regulations "with the previous sanction of the Central Government", the Regulations of 1948 do not purport to have been made with such sanction. Indeed, in so far as the ex facie asp ect of the matter is concerned, the Regulations of 1948 do not purport to have been made under section 58 at all. It is true that this by itself is not conclusive because, failure to mention the source of power cannot invalidate the exercise of power, if the power is possessed by the authority which exercises it. But, the common course of the manner in which the Central Board exercises its power when it purports to do so under section 58 is not without relevance and has an imp ortant bearing on the question under consideration. The Employees Provident Fund Regulations of 1935, the Note Issue Regulations of 1935 the General Regulations of 1949, the Scheduled Banks Regulations of 1951 and the Guarantee Fund Regulat ions, which were all framed under section 58, contain a preamble reciting that they were framed under that section and that they were framed with the previous sanction of the Centralconsidered the correspondence bearing on the subject and particularly the aforesaid Memorandum, we see no reason to doubt the contention of the Bank that the Regulations of 194 8 were not framed under section 58 and that they were not made with the previous sanction of the Central Government. The then Governor of the Reserve Bank of India, Shri C. D. Deshmukh, a distinguished Economist and Civilian, was perhaps justified in assuming from the correspondence that the Central Government has no objection to the proposed regulations, which explains his statement, that they were made with the "approval" of the Central Government. But, it is one thing to infer that the Regulations had the approval of the Central Government since no objection was raised by it to the making of the regulations and quite another that they were made with its previous sanction. The supplementary affidavit dated March, 1980 w hich was filed on behalf of the Reserve Bank by Shri Pradeep Madhav Joshi, Deputy Manager in the Department of Administration and Personnel, has dealt fully with the correspondence on the subject of previous sanction of the Central Government to the Regulations of 1948. We are inclined to accept the statement contained in paragraph 9 of the said affidavit that the Memorandum of January 21, 1949 contains a "factual mistake" to the effect that the Staff Regulations, (which would inclu de the Regulations of 1948) were made with the approval of Central Government. We therefore conclude that the Reserve Bank of India (Staff) Regulations of 1948 were not made under section 58 of the Act and that, in fact, the Central Board had not obtained the sanction of the Central Government to the making of those Regulations.The High Courts of Bombay, (1) Calcutta and Delhi(2) have all taken the view that the Staff Regulations of 1948 are not statutory, not having been framed under section 58 of the Act. We endorse the correctness of thatcase of the petitioners is tha t the Administrative Circular and the draft Combined Seniority list are violative of their rights under articles 14 and 16 of the Constitution because; (a) The combined fixation of seniority has the effect of treating unequals as equals in so far as officers belonging to different groups are concerned, whose appointment, recruitment, promotion and seniority had all along been fixed, accepted and acted upon on a group-wise basis; and (b) Recruitment, selection and promotion of off icers having been made on a group-wise basis from time to time and their seniority having been fixed accordingly, the seniority is now fixed retrospectively from an arbitrary date viz., May 22, 1974.These contentions, particularly the first, h ave to be answered in the light of historical data governing the constitution and management of Services under the Reserve Bank, from time to time. Without an awareness of the history leading to the events which the petitioners have challenged as unconstitutional, it will not be possible either to appreciate their contention or to provide an answer toThareja Committee, like the Cadre Review Committee, unanimously recommended the introduction of combined seniority simultaneously for all grades of officers. However, on the question of the operative date, it was divided in its views. Whereas Shri Thareja and Shri Katara, both Group I officers, recommended that the scheme be given retrospective effect from January 1, 1976, the other two members representing Groups II and III, were of the view that it should be given effect from January 1, 1970. The Bank, by the impugned circular, accepted May 22, 1974 as the date from which the combined seniority list was to have effect.It is clear from this narration of historical events that the various Departments of the Reserve Bank were grouped and regrouped from time to time. Such adjustments in t he administrative affairs of the Bank are a necessary sequel to the growing demands of new situations which are bound to arise in any developing economy. The group system has never been a closed or static chapter and it is wrong to think that t he officers of the various groups were kept, as it were, in quarantine. The group system has been a continuous process of trial and error and the impugned scheme of inter-group mobility has emerged as the best solution out of the e xperience of the past. Combined seniority has been recommended by two special committees, whose reports reflect the expertise and objectivity which was brought to bear on their sensitive task. It is clear that inter-group mobility and commo n seniority are a safe and sound solution to the conflicting demands of officers belonging to Group I on one hand and those of Groups II and III on the other. Private interest of employees of public undertakings cannot override public interest an d an effort has to be made to harmonize the two considerations. No scheme governing service matters can be fool-proof and some section or the other employees is bound to feel aggrieved on the score of its expectations being falsified or remaining to be fulfilled. Arbitrariness, irrationality, perversity and mala fides will of course render any scheme unconstitutional but the fact that the scheme does not satisfy the expectations of every employee is not evidence of these. V ested interests are prone to hold on to their acquisitions and we understand the feelings of Group I officers who have to surrender a part of the benefits which had accrued to them in a water-tight system of grouping. Combined seniority is indispensable for the smooth functioning of the Bank and no organisation can function smoothly if one section of its officers has an unfair advantage over others in matters of promotional opportunities. The reports of the Cardre Review Committee and the Thareja Committee show that combined seniority has emerged as the most acceptable solution as a matter of administrative, historical and functional necessity. We see no justification for undoing what these com mittees have achieved after an objective and integral examination of the whole issue. We may mention that the conclusion to which these committees came were considered by the Bank when Shri M. Narasimhan, later Indias Executive Director in the World Bank, was the Governor and it was after Dr. I.G. Patel, Formerly Secretary, Economic Affairs, Govt. of India and Deputy Administrator, United Nations Development Programme, took over as Governor in December 1977 th at the final decision was taken by the Central Board to introduce inter-group mobility and combined seniority.In Reserve Bank of India v. N.C. Paliwal, a Combined Seniority Scheme was introduced by the Reserve Bank of India, consisting of two parts, one part provided for the integration of the clerical staff of the General Departments with the clerical staff of the Specialised Departments, while the other provided for the switch-over and integration of the non-clerical staff with the clerical staff in all the Departments of the Bank. The Delhi High Court set aside the Scheme on the ground that it violated Articles 14 and 16 of the Constitution. While setting aside the judgment of the High Court, this Court held that th e integration of different cadres into one cadre did not involve violation of the equality clause and that neither Article 14 nor Article 16 forbids creation of different cadres in Government service. Whether there should be a combined seniori ty in different cadres or groups was, according to the Court, a matter of policy which did not attract the applicability of the equality clause. The integration of non-clerical with clerical services which was effectuated by the Combined Seniority Scheme was, in the circumstances, held to be not violative of the guarantee contained in Articles 14 andregards the retrospective operation given to the Scheme with effect from May 22, 1974, it does appear that the Board has st ruck a via media between two extreme contentions advanced by officers belonging to Group I and those belonging to Groups II and III. But that was inevitable and we consider it as the best solution in the peculiar circumstances of the case. In order to rectify the imbalances and anomalies caused by the compartmentalised and group-wise seniority, it was necessary to give retrospective effect to the Combined Seniority List. Officers belonging to Group I urged that the Scheme should be b rought into effect from January 1, 1976, while those belonging to Groups II and III wanted the Scheme to be brought into effect from January 1, 1970. The Central Board struck a balance by choosing the date May 22, 1974, because that was the date on which the decision in regard to combining the seniority retrospectively with effect from January 1, 1970 in regard to Grade A and part of Grade B officers was announced. It was, again, on that date that the Bank had announced that a similar de cision in regard to the remaining grade, of officers was under its considerations. Thus, at least on May 22, 1974 it was known to officers of all grades that a combined seniority list was due to be brought into force. If a certain section o f officers succeeded in obtaining promotional benefits thereafter, the imbalance introduced thereby in the services of the Bank and the consequent dissatisfaction had to be rectified. That could only be done by not recognising the accelerated promotions obtained in the intervening period by a certain class of officers. Shri Nariman has drawn our attention to various individual cases of officers in Group I whose old seniority has gone down by several steps in the new Scheme. As we have stated earlier, any scheme of seniority is bound to produce isolated aberrations. That cannot justify the argument that the entire Scheme is for that reason violative of the guarantee of equality.We are, therefore, of the opinion that the imp ugned Administration Circular, the Office Order and the Combined Seniority List are not violative of the rights of the petitioners under Articles 14 and 16 of the Constitution.