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REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 1217 OF 2011

Brij Bihari Singh Appellant(s)

versus

Bihar State Financial Corporation  and others                                                        Respondent(s)

J U D G M E N T

M.Y. Eqbal, J.:

The  appellant  was  working  on  the  post  of  Assistant  

General Manager in the Bihar State Financial Corporation (in  

short,  “the  Corporation”).  At  the  direction  of  State  

Government, vide letter dated 20th March, 1993, the Managing  

Director of the Corporation, who is the Disciplinary Authority,  

put the appellant under suspension and initiated disciplinary  

proceedings on the following charges:-

“1. He recommended release of Rs. 4.33 lakhs to  M/s. Koshi Jute Mills Pvt. Ltd., Supaul against  purchased  machines  without  deducting  the  stipulated  promoter's  margin  money,  which  is  

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evident from the fact that the promoter's margin  money was deducted in totality  at  the time of  subsequent  release  of  Rs.7.80  lakhs  to  the  concern on 19.12.90.

2.  He  intentionally  and  in  utter  violence  of  delegated powers released Rs. 7.80 lakhs to the  concern (M/s. Koshi Jute Mills Pvt. Ltd., Supaul)  on 19.12.90 at his own for which he was not the  competent authority for disbursing such amount  at his own. This irregular act of his is a grave  misconduct for his wrongful gain.

3. While making release of Rs. 7.80 lakhs to the  concern (M/s. Koshi Jute Mills Pvt. Ltd., Supaul)  in utter violation of delegated powers, he did not  retain  the  15%  retention  money  according  to  stipulated conditions in the Sanction Order and  mutual  agreement  between  the  promoter  and  the machine supplier.

4. While making release to the aforesaid concern  he  deliberately  suppressed  the  facts  regarding  observations of the Vigilance and Grievance Cell  dated 22.12.89 and mentioned that the dealing  of  machine  supplier  is  genuine  whereas  observations  of  Vigilance  and  Grievance  Cell  duly approved by the M.D. available in the loan  file  shows  that  the  machine  supplier  is  not  refunded  and that  of  his  connivance  with  the  promoter.

5.  He  deliberately  ignored  the  further  observations  of  the  Vigilance  & Grievance  Cell  duly approved by M.D. to inspect the site of the  machine supplier immediately and made release  to the aforesaid concern.

6.  He deliberately received the payment of  Car  Allowance for the period from 9.3.88 to 1.10.88  without  having  a  car  in  his  name  during  aforesaid period.

7.  He  purchased  land  at  Patliputra  Colony,  Patna  from  Dr.  Bindeshwari  Prasad  Singh  through  three  different  absolute  sale  deeds  

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(Registered at Calcutta) showing himself as false  profession without disclosing the source of fund  arranged.”

2. After  serving  the  aforesaid  memorandum  of  charges  

upon  the  appellant  some  additional  charges  were  served,  

which are also set out below :-

“He  himself  examined  the  proposal  of  Delhi  based  fake  promoter  of  M/s.  Divine  Cycle  (P)  Ltd.,  Industrial  Area,  Fatwah  on  promoter's  personal guarantee and placed the proposal with  recommendation before the Board for sanction of  loan  to  the  Company  when  the  residential  addresses  of  promoters  were  incomplete  and  official address was subsequently found fake. He  should  have  examined  the  proposal  before  recommending the case to the Board which he  did not do so as a result the promoter managed  to grab the fund from the Corporation and left  the unit abandoned. Thus due to his negligence  of duties in processing of the loan proposal the  Corporation  has  been  put  to  a  huge  financial  loss.

He, with an ulterior motive did not inform H.O.  after  getting  the  site  jointly  inspected  with  BICICO representative in Feb. '83 that the unit  was  running  in  a  rented  premises  other  than  that  of  mortgaged  to  the  Corporation  and  deliberately did not take any action against the  promoter which proves his connivance with the  promoter of the company to cause wrongful loss  to the Corporation.”

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3. It appears that one officer of the State Government on  

deputation  was  made  Enquiry  Officer,  who  conducted  the  

enquiry  in  respect  of  the  aforesaid  charges  and  submitted  

enquiry report holding that the majority of the charges have  

been proved.  Consequently, 2nd show cause notice was given  

to the appellant which was duly responded.  The appellant was  

then directed to be personally present for hearing and then the  

Managing  Director,  instead  of  passing  final  order,  

recommended the Board of Directors of the Corporation for the  

punishment to be imposed upon the appellant. On receipt of  

the said recommendation, the Board finally passed an order of  

dismissal of the appellant from service.

4. The appellant assailed the order of dismissal by filing a  

writ  petition  being  CWJC  No.3528  of  1994,  which  was  

eventually dismissed by the learned Single Judge of the High  

Court.  The said judgment and order was finally upheld by the  

Division  Bench  of  the  High  Court  in  Letters  Patent  Appeal  

No.51 of 1998.

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5. Mr. Sunil  Kumar, learned senior counsel  appearing for  

the  appellant  assailed  the  impugned  judgment  of  the  High  

Court and the order of dismissal of the appellant mainly on  

the  following grounds:-

“I. The  departmental  proceeding  was  conducted  by  the  Enquiry  Officer  by  merely  perusing  the  files  without  representing  officer  presenting  the  case  on behalf  of  the  employer  and without recording any evidence in support  of the charges.

II. The  Enquiry  Officer  in  the  departmental  proceedings  submitted  his  report  merely  by  perusing  the  files  without  the  charges  being  proved by the employer.

III. There is a serious violation of principles of  natural justice for the reason inter alia  that the  presenting officer neither presented the case of  the employer nor led any oral or documentary  evidence. The Disciplinary Authority, instead of  passing  a  final  order  on  the  basis  of  enquiry  report  and  the  explanation  submitted  by  the  appellant, recommended the case to the Board  for taking a final decision.  The Board, which is  the appellate authority usurp the power of the  Disciplinary Authority and passed the order of  punishment.”

6. Before we decide the legality and propriety of the order of  

dismissal  passed by the  respondent,  we would like to  refer  

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relevant provisions of the Regulations called the Bihar State  

Financial Corporation (Staff) Regulations, 1965.  Regulations  

39 and 40 read as under:-

“39. Penalties:- (i)  Without  prejudice  to  the  provisions  of  the  Regulations,  an employee  who  commits  a  breach  of  the  regulations  of  the  Corporation  or  who  displays   negligence,  inefficiency  or  indolence  or  who knowingly  does  anything  detrimental  to  the  interest  of  the  Corporation or in conflict with its instructions or  who commits a breach of discipline or is guilty of  any other act of misconduct or who is convicted of  a criminal offence shall be liable to any  or all of  the following penalties:-

(a) Reprimand; (b) Withholding  or  postponement  of  

increment  or  promotion  including  stoppage at an efficiency bar, if any,

(c) Reduction to a lower post or grade or to a  lower stage in his incremental scale.

(d) Recovery from pay of the whole or part of  any  pecuniary  loss  caused  to  the  Corporation by the employee,

(e) Fine, (f) Suspension, (g) Dismissal, (h) Discharge, or (i) Compulsory retirement

(ii) No  employee  shall  be  subjected  to  the  penalties in clauses (b), (c), (d), (e), (f), (g), (h) or (i)  of sub-regulation (i) except by an order in writing  signed  by  the  Managing  Director  and  no  such  order  shall  be  passed  without  the  charge  or  charges being formulated in writing and given to  the said employ so that he shall have reasonable  opportunity  to  answer  them  in  writing  or  in  person, as he prefers, and in the latter case his  defence shall be taken down in writing and read  

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to  him,  provided  that  the  requirements  or  this  Regulation may be waived if the facts on the basis  of  which  action  is  to  be  taken  have  been  established  in  a  Court  of  Law  or  where  the  employee  has  absconded  or  where  it  is  for  any  other reason impracticable to communicate with  him or where there is difficulty in observing them  and  the  requirements  can  be  waived  without  injustice to the employee.  In every case where all  or any of the requirements of this Regulation are  waived, the reasons for so doing shall be recorded  in writing.

(iii)  An employee may, before the initiation of any  proceeding  under  sub-regulation  (ii)  or  pending  the  completion  of  such  proceeding  be  placed  under  suspension  by  the  Managing  Director.  During  such  suspension  he  shall  receive  subsistence allowance equal to two thirds of his  substantive  pay  plus  the  dearness  allowance,  provided  that  if  no  penalty  under  any  of  the  clauses  (b),  (c),  (d),  (e),  (f),  (g),  (h)  or  (i)  of  sub- regulation (i)  is  imposed,  the employee  shall  be  paid  the  difference  between  the  subsistence  allowance  and the  emoluments  which he  would  have  received  but  for  such  suspension  for  the  period while he was under suspension and that, if  a  penalty  is  imposed  on  him  under  the  said  clauses,  no  order  shall  be  passed  which  shall  have the effect of compelling him to refund such  subsistence  allowance.  The period  during which  an employee is under suspension shall,  if  he is  not dismissed from the service, be treated as on  duty  for  specific  purpose,  i.e.  as  the  Managing  Director may direct.

40. Right  to  appeal:- (i)  An  employee  shall  have a right of appeal against any order passed by  the competent authority which injuriously affects  his interests.  (ii)     No appeal shall lie after the expiration of  sixty  days from the date of  receipt  of  the order  against which the appeal is preferred.”

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7. Perusal  of  Regulations  39  and  40  would  show  the  

manner and procedure for conducting departmental enquiry.  

Regulation  40  confers  a  statutory  right  of  appeal  to  the  

employee against an order passed by the competent authority  

which injuriously affects his interest.

8. It is well settled that a person who is required to answer  

a charge imposed should know not only the accusation but  

also the testimony by which the accusation is supported.  The  

delinquent must be given fair chance to hear the evidence in  

support of the charge and to cross-examine the witnesses who  

prove the charge.  The delinquent must also be given a chance  

to rebut the evidence led against him.  A departure from this  

requirement  violates  the  principles  of  natural  justice.  

Furthermore, the materials brought on record pointing out the  

guilt are required to be proved.  If the enquiry report is based  

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on merely ipse dixit  and also conjecture and surmises cannot  

be sustained in law.  

9. In the case of  State of U.P. vs. Saroj Kumar Sinha,  

(2010) 2 SCC 772, this Court held:-

“28. An  inquiry  officer  acting  in  a  quasi-judicial  authority  is  in  the  position  of  an  independent  adjudicator. He is not supposed to be a representative  of the department/disciplinary authority/Government.  His function is to examine the evidence presented by  the Department, even in the absence of the delinquent  official to see as to whether the unrebutted evidence is  sufficient to hold that the charges are proved. In the  present  case  the  aforesaid  procedure  has  not  been  observed. Since no oral evidence has been examined  the documents have not been proved, and could not  have been taken into consideration to conclude that  the charges have been proved against the respondents. 29. Apart from the above, by virtue of Article 311(2) of  the Constitution of India the departmental enquiry had  to  be  conducted  in  accordance  with  the  rules  of  natural justice. It is a basic requirement of the rules of  natural justice that an employee be given a reasonable  opportunity of being heard in any proceedings which  may culminate in punishment being imposed on the  employee. 30. When a departmental enquiry is conducted against  the  government  servant  it  cannot  be  treated  as  a  casual exercise. The enquiry proceedings also cannot  be conducted with a closed mind. The inquiry officer  has to be wholly unbiased. The rules of natural justice  are required to be observed to ensure not  only  that  justice is done but is manifestly seen to be done. The  object  of rules of natural justice is to ensure that a  government  servant  is  treated  fairly  in  proceedings  

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which  may  culminate  in  imposition  of  punishment  including dismissal/removal from service.”

10. In  the  instant  case,  the  disciplinary  proceeding  was  

conducted  in  gross  violation  of  Regulation  39  of  the  said  

Regulations inasmuch as no reasonable opportunity was given  

to the delinquent to place his case in defence.  The Regulation  

imposed a duty on the Authority to give a personal hearing to  

the delinquent.

11. A right of appeal has been provided by Regulation 40 of  

the  said  Regulations  against  any  order  passed  by  the  

competent Authority.  In the instant case as noticed above, the  

Disciplinary  Authority,  instead  of  exercising  the  power  as  

Disciplinary  Authority  imposing  punishment,  referred  his  

recommendations to the appellate authority, namely, Board of  

Directors  for  taking  a  decision  and  the  Board  of  Directors  

exercised  the  power  of  Disciplinary  Authority  and  imposed  

punishment of dismissal thereby deprived the appellant from  

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moving the appellate authority against the said order.  Such  

exercise of power is wholly arbitrary and discriminatory.

12. Curiously  enough,  the  Managing  Director  being  the  

disciplinary  authority  prepared  his  report  and  referred  the  

matter to the Board of Directors to consider the draft charges,  

enquiry  report,  representation filed by the officer  concerned  

and his finding, for taking an appropriate decision in the case.  

Not only that, when the case was placed before the Board for  

taking a final decision, he participated in the said meeting and  

a decision was taken by the Board of Directors to dismiss the  

appellant  from service.   In  our  considered  opinion,  such  a  

procedure  adopted  by  the  disciplinary  authority  and  the  

appellate authority is absolutely erroneous in law.

13. In the case of   Surjit  Ghosh vs.  United Commercial  

Bank,  AIR   1995  SC  1053, this  Court  in   similar  

circumstances, observed:-

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“5. ……..It is true that when an authority higher than  the  disciplinary  authority  itself  imposes  the  punishment, the order of punishment suffers from no  illegality when no appeal is provided to such authority.  However,  when an appeal  is  provided  to  the  higher  authority  concerned  against  the  order  of  the  disciplinary authority or of a lower authority and the  higher authority passes an order of punishment, the  employee  concerned  is  deprived  of  the  remedy  of  appeal which is a substantive right given to him by the  Rules/Regulations. An employee cannot be deprived of  his substantive right. What is further, when there is a  provision of appeal against the order of the disciplinary  authority  and  when  the  appellate  or  the  higher  authority  against  whose  order  there  is  no  appeal,  exercises the powers of the disciplinary authority in a  given  case,  it  results  in  discrimination  against  the  employee concerned. This is particularly so when there  are no guidelines in the Rules/Regulations as to when  the higher authority or the appellate authority should  exercise the powers of the disciplinary authority. The  higher or appellate authority may choose to exercise  the power of the disciplinary authority in some cases  while not doing so in other cases. In such cases, the  right of the employee depends upon the choice of the  higher/appellate  authority  which  patently  results  in  discrimination  between  an  employee  and  employee.  Surely,  such  a  situation  cannot  savour  of  legality.  Hence we are of the view that the contention advanced  on  behalf  of  the  respondent-Bank  that  when  an  appellate  authority  chooses  to  exercise  the  power  of  disciplinary authority, it should be held that there is  no  right  of  appeal  provided  under  the  Regulations  cannot be accepted. The  result,  therefore,  is  that  the  present  order  of  dismissal suffers from an inherent defect and has to  be set aside.”

14. In  Amar  Nath  Chowdhury  vs.   Braithwaite  and  

Company Ltd. and Ors.,  (2002) 2 SCC 290, a similar case  

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came for consideration before this Court.   In that case, the  

appellant who was an employee of Braithwaite and Company  

Ltd.,  a  Government  of  India  undertaking,  was  subjected  to  

disciplinary proceedings.  The enquiry committee submitted its  

report to the disciplinary authority  who was the Chairman-

cum-Managing  Director  of  the  Company.   The  disciplinary  

authority  passed an order  of  removal  of  the appellant  from  

service.  The appellant moved the Board of Directors who was  

the appellate authority.  When the appeal was taken up by the  

Board,  the  said  Chairman-cum-Managing  Director  

participated in the deliberation of  the meeting of  the Board  

which heard and dismissed the appeal.  On these facts, this  

Court held that the proceeding of the Board was vitiated on  

account  of  participation  of  the  disciplinary  authority  while  

deciding the appeal preferred by the appellant.  Similar view  

has  been  taken  in  the  case  of  Institute  of  Chartered  

Accountants of India vs.  L.K. Ratna and Ors.,  (1986) 4  

SCC 537.

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15. In  the  case  of  K.  Chelliah  vs.  Chairman Industrial  

Finance Corporation of India and Anr., AIR 1973 Mad. 122,  

an  employee  of  the  IFCI  was  dismissed  from service.   The  

decision  to  terminate  the  employee  was  taken  up  by  the  

Chairman  who  was  also  a  Member  of  the  Board  which  

considered the appeal.  The High Court held that the entire  

proceeding  was  vitiated  by  non-observance  of  principles  of  

natural justice.

16. After giving our anxious consideration in the matter, we  

are  of  the  definite  view  that  the  procedure  adopted  by  the  

respondents  in  removing  the  appellant  from  service  is  

erroneous and suffers from serious discrimination and bias.  

Further,  the Enquiry  Officer  conducted the  enquiry  without  

following  the  procedure  and  without  giving  sufficient  

opportunity to the delinquent to place his case.  Enquiry is  

also vitiated in law.

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17. For the reason aforesaid, we find that the appeal deserves  

to succeed.  The orders passed by the Board of Directors and  

the impugned judgments passed by the High Court are liable  

to be set aside.   The matter  is,  therefore,  sent  back to the  

Disciplinary Authority to proceed from the stage of the enquiry  

afresh and pass a reasoned order in accordance with law after  

giving full opportunity of hearing to the appellant.  Needless to  

say if the appellant is aggrieved by the final order that may be  

passed by the Disciplinary Authority, he shall have a right to  

appeal before the appellate authority.

…………………………….J. (M.Y. Eqbal)

…………………………….J. (C. Nagappan)

New Delhi November 20, 2015  

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