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REPORTABLE IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.2463 OF 2015

ASSISTANT GENERAL MANAGER & ORS. … APPELLANTS

VERSUS

RADHEY SHYAM PANDEY … RESPONDENT

WITH

CIVIL APPEAL NOS.2287­2288 OF 2010

CIVIL APPEAL NOS.5035­5037 OF 2012

CIVIL APPEAL NO.10813 OF 2013

J U D G M E N T

ARUN MISHRA, J.

1. The question involved is whether the respondent­employees are

entitled to pension on completion of  15 years of  service as per the

State Bank of India Voluntary Retirement Scheme (for short, “the VRS

framed in 2000”).

2. The matter has been referred to larger Bench due to conflict of

opinion between the Judges as to the admissibility of pension under

the VRS.

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3. After obtaining approval of the Government of India, the Indian

Bank Association (IBA) evolved a Voluntary Retirement Scheme. The

Central Board of Directors of the State Bank of India (in short  ‘the

SBI’) adopted and approved the scheme in its meeting held on

27.12.2000 for implementing the VRS for the employees of the bank

by retiring them on completion of 15 years of service with the benefit

provided in the scheme. The scheme had been drawn up, keeping in

view the guidelines issued by the IBA.   “Memorandum” dated

26.12.2000 was submitted by the Deputy Managing Director and the

Corporate Development Officer for according approval to the proposals

contained  in the Memorandum as also  for adopting the scheme as

Annexure ‘B’ to the Memorandum.  

4. The basis of Memorandum dated 26.12.2000, was the advice by

IBA vide letter dated 31.8.2000 in which it was pointed out that they

deliberated with the Government of India, Ministry of Finance

(Banking  Division), at its  meeting  with the  Finance  Minister,  with

Chief  Executives  of  public  sector  banks  on 13.6.2000.  The  human

resource and manpower planning in public sector banks were

reviewed,  and  a  Committee  was  constituted to examine the issues

concerned  to  public  sector  banks and to  suggest  suitable  remedial

measures. The Committee considered the economic reforms set in

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motion in the year 1990, the high establishment cost and low

productivity in public sector banks. It was felt that the banks convert

their human resource into assets compatible with the business

strategies through a variety of measures. The data available indicated

that 43% of the employees in public sector banks were in the 46 + age

group, and only 12% were in the 25­35 age group. It was felt that this

pattern has severe implications for the banks regarding mobility,

training, development of skills, and succession plans for higher­level

positions. The workforce was in excess. In order to remedy the

situation, the Committee placed before the Government two schemes,

viz., Sabbatical Leave, and a Voluntary Retirement Scheme. The IBA

vide letter dated 13.7.2000 sought no objection from the Government

for circulating the schemes to the banks for consideration and

adoption by their  Boards.  The  Government  conveyed  on  29.8.2000

that it did not have any objection for adopting and implementing the

scheme by the respective Board of Directors. It advised that the banks

may adopt these schemes for sabbatical leave and voluntary

retirement based on the essential features of the schemes given in the

annexure to the letter. The scheme provided eligibility for all

permanent employees with 15 years of service. It provided for amount

of  ex gratia  and other benefits accepted by the Government of India

which were to be provided (i) gratuity as per the Gratuity Act/service

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gratuity, as the case may be; (ii) pension (including commuted value of

pension)/bank’s contribution towards provident  fund; and (iii) leave

encashment as per rules.

5. After the Central Board of SBI approved the proposals contained

in the memorandum on 27.12.2000, a circular was issued on

29.12.2000 in which it was mentioned that the IBA advised that as the

Committee constituted by the Finance Ministry recommended

introduction of a VRS in order to rationalise the manpower, the

Government of India has no objection for adopting and implementing

the VRS. It was clearly stated in the Circular dated 29.12.2000 that

the  Central  Board  of  Directors  accorded approval for  adopting  and

implementing the SBI voluntary Retirement Scheme drawn up,

“keeping in view the guidelines issued by the IBA." Copy of the scheme

was placed as Annexure B. The scheme was open from 15.1.2001 till

31.1.2001. Specimen applications and other related forms inter alia for

pension were also circulated, which formed part of the circular. The

circular also made it clear that gratuity, provident fund contribution

as per the Provident Fund Rules, pension in terms of the SBI

Employees’ Pension  Fund  Rules, leave encashment to be provided

beside the amount of ex gratia.

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6. The heart and soul of the scheme were that benefits to be given

on completion of 15 years of service. The eligibility for benefits was

provided to those who had completed 15 years of service as on

31.12.2000.

7. The SBI submitted that it reserved a right under the scheme to

modify, amend or cancel it or any of the clauses and to give effect to it

from any date deemed fit.  The Deputy Managing Director­cum­CDO

was the competent authority for the purpose. As specific queries were

raised, a clarification was issued by the Deputy Managing Director on

15.1.2001, in which about a query whether an employee on

completing 15 years of pensionable service as on the relevant date of

retirement, would be entitled to pensionary benefits, in response, para

6(c) of the scheme was reiterated, and it was also mentioned that as

per the existing rules, employees who had not completed 20 years of

pensionable service, were not eligible for pension.

8. The clarification issued by the Deputy General Manager was not

in the form of modification or amendment of the scheme. The Deputy

General  Manager in clarification  quoted the  provisions  and simply

stated the position of a rule that the pensionable service was 20 years.

The communication was clarificatory and did not have the effect of

modifying the SBI VRS scheme as approved and adopted.

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9. (a)  Radhey Shyam Pandey questioned the refusal of the bank to pay

pension, vide communication dated 26.9.2006 in the writ application

filed in the High Court at Allahabad. He retired on 31.3.2001 under

the SBI VRS. On 18.3.2001, the bank accepted the offer of the

employee to retire him voluntarily. He was aged 59 years three months

and had nine months service still to go before attaining the age of

superannuation.  On 31.3.2001, when the VRS became effective,  he

had put in 19 years, nine months, and 18 days of pensionable service.

He had to retire on completion of 60 years, and would have put in a

little more than 20 years of pensionable service.   

(b) The High Court held that the case of the employee fell under the

Second Part of Rule 22(i)(a). He was in service of the bank on and after

11.11.1993 and completed ten years of pensionable service, and

further, he attained the age of 58 years before the date he retired.  The

High  Court opined that the clarification  was  not part of the  VRS

scheme. The employee retired outside rule as per the contractual

retirement scheme. The contract had to prevail. In Pension Fund

Rules, Clause (a) in Rule 22(i) was inserted to give the employees the

benefit of pension after ten years of pensionable service even if they

had joined late. The High Court found that the matter was covered by

Rule 22(i)(a).  The admissible benefit cannot be denied. If a contracting

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party is entitled to take benefit of a permissible clause, then it cannot

be denied to him.  

(c) In the Chairman, State Bank of India & Ors. v. Mihir Kumar Nandi

& Anr. (C.A.  Nos.  5035­5037/2012),  a  Division Bench of the  High

Court of Calcutta dismissing the intra­court appeal, affirmed the order

of the learned  Single  Judge  and  directed to  make the  payment  of

pension. The employee was appointed on 21.5.1988. He opted for VRS

on 15.1.2001. The acceptance was conveyed on 17.3.2001 by which

he was informed that he would be relieved of his duties on 31.3.2001.

Vide letter dated 2.8.2001, the employee was granted a pension at the

rate of Rs.1024 per month. However, vide communication dated

30.8.2001, the pension payment order, together with payment of

commuted value, was stopped in view of the amendment of Rule 22 of

the Pension Fund Rules. Though the amendments in Pension Fund

Rules were made effective with effect from 31.3.2001, and the age of

retirement had been raised from 58 years to 60 years, w.e.f.

22.5.1998, this  had necessitated increase in age for admission to

Pension Fund to 58 years specified in Rule 22(i)(a) of the Rules so that

the employees who have retired/are retiring on attaining the age of 60

years  after  completing ten years  of  pensionable  service  on or  after

22.5.1998 are eligible for pension.

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(d) The Central Board of the SBI in its meeting held on 30.1.2001

accorded approval to the amendment in Rules 8 and 22(i)(a)  of  the

Rules as set out in Annexure 1. The Trustees of the SBI Employees’

Pension Fund in their meeting on 30.10.2001 adopted the amended

rules. Consequently, a Circular was issued on 8.11.2001. The

amendment was given effect from 31.3.2001, the date on which it was

notified, though it was adopted  by the  Trustees of the SBI Trust

Pension Fund in October 2001.  

(e) A Division Bench of the High Court held respondent­employee,

as per rules on 17.3.2001, the date on which his offer was accepted,

was eligible to get the pension. On 31.3.2001, the amended rules were

published, which took away the existing right to get the pension. In

VRS Scheme, it was mentioned that the pension would be payable in

accordance  with the rules  as on  31.3.2001.  The  employee  had  no

means of knowing about the future amendment of the Pension Rules,

which would be detrimental to his interest. If he had known the fact,

then he would not have opted for the scheme. The silence maintained

by the employer in such a situation amounted to a fraud on its part.

The High Court relied upon section 17 of the Contract Act and

Illustration (d) to section  19  of the  Contract  Act. The  High  Court

further held that it was the duty of the employer to disclose that there

would  be a  future  amendment  on  the  last  date  of their  service  by

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which their right to pension would be taken away. The same cannot

but be said to be unfair and arbitrary. Thus, the High Court held that

action is violative of Article 14 of the Constitution of India. The

employee is entitled to the relief of pension along with interest.

10. Ramesh Prasad Nigam (supra) had joined the services in 1984 in

the clerical cadre and was confirmed on 2.3.1985. He had applied for

VRS, having completed 15 years of service and 57 years of age. The

clarification was internal circulation. It was not within the knowledge

of employees; as such, he was entitled to the pension.

11. (a)  In C.A. Nos.2287­88/2010, M.P. Hallan joined the services of

the bank on 18.5.1981 as a clerk. The acceptance under VRS was

communicated on 17.3.2001. On 27.3.2001, he applied to withdraw

his request made under VRS as retirement was w.e.f. 31.3.2001. The

Bank declined application on 18.4.2001 on the ground that the last

date of  withdrawal  of  the application was 15.2.2001. The employee

claimed pension under Pension Fund Rules in terms of SBI

Employees’  Pension Fund Rules  (hereinafter  referred to  as  ‘Pension

Rules’). By writing a letter on 12.4.2001, the claim of the employee for

withdrawal of application for voluntary retirement, pension, and leave

encashment was again declined on 4.7.2001. Thereafter, he filed a writ

petition in the High Court of Punjab & Haryana.

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(b) The  High Court rejected the  claim concerning  the  withdrawal

from VRS. As the last date for withdrawal was over, and acceptance

had been communicated, however, considering Rule 22 of the Pension

Rules, the High Court opined that as the employee completed more

than 19 years and ten months of service on 31.3.2001, therefore, the

first part of clause one of Rule 22 is not applicable. Further, the third

part of clause (a) is not applicable as he has completed ten years of

service but not attained the age of 60 years. The case of the employee

was covered under the second part of  clause  (a)  of  Rule 22, which

enabled the member to get a pension if an employee in the service of

the bank on or after 1.11.1993, and completed ten years pensionable

service and attained 58 years age. The employee applied in terms of

the  Pension  Rules  prevailing in January  2001.  Alternatively, if an

employee was in service of  the bank on or after 1.11.1993, having

completed ten years of pensionable service and on attaining the age of

58 years, shall be entitled to a pension. Thus, he fulfilled the

requirement  of second  part  of clause (a)  of  Rule  22  as  he  was in

service of the bank on 1.11.1993 and completed ten years of

pensionable service, and the age of 58 years, therefore,  in terms of

Rule 22, he was entitled to pension as well as leave encashment dues

along with interest at the rate of 9 percent per annum.

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12. On behalf of the bank, it was submitted that VRS 2000

stipulated that the pension in terms of SBI Pension Fund Rules on the

relevant date, i.e., 31.3.2001, was to be provided. In other words, in

case the employee was entitled to a pension in terms of Pension Rules

and not otherwise. A provision was added in Rule 22(1) of the Pension

Rules in the year 1986, accordingly, the pension was to be granted in

all cases relating to voluntary retirement on completion of 20 years of

service. The employees opting for the SBI­VRS would be governed only

by Rule 22(i)(c) as it falls under the category of voluntary retirement.

Under Rule 22(iii), a member who has been permitted to retire under

clause 22(i)(c) shall be entitled to a proportionate pension, which is on

completion of 20 years of pensionable service. Eligibility clause 3 has

nothing  to  do with the admissibility  of the pension. It  was  further

submitted that the employees who completed ten years of pensionable

service and were 60 years of age were entitled to pension; while

employees under the VRS on completion of 15 years would not get

pension and for that 20 years' service was necessary, the submission

of  employees  that it  would be discriminatory  is  based on  incorrect

premise. There is no challenge to the SBI Pension Rules or SBI­VRS.

The bank provided the pensionable service period of 10 years on

attaining the age of 60 years in terms of reservation policy. The bank

appoints late entrants like ex­servicemen who, after serving in Armed

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Forces, join the bank and are left only with about ten years of service

before they attain the age of superannuation. It is to grant benefit to

such a particular category of employees that a period of 10 years on

attaining the age of superannuation of 60 years was provided in Rule

22(i)(a).

13. The appellants further submitted that 20 years' period is

provided in case of voluntary retirement to ensure that an employee

on whom the bank has spent a considerable amount during training,

works for a substantial period  before  he seeks retirement. It is a

uniform policy followed by the bank. Regulation 28 was amended in

2002 providing for 15 years of service. It applies to the employees who

are governed by the Bank Employees' Pension Regulations, 1995.

These regulations do not apply to SBI employees as the SBI Pension

Rules  govern them.  SBI employees  are entitled to  Provident  Fund,

gratuity and pension in terms of the Rules on completion of 20 years

of service. Thus, there cannot be any comparison of SBI employees

with the employees of other nationalised banks. The clarification dated

11.01.2000 has also been relied on by the bank. Now more than 19

years  have  passed and to grant a pension to all those who  have

retired,  w.e.f.  1.4.2001 would cast  a huge  financial liability  on  the

bank.

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14. It was submitted on behalf of the employees that the decision

rendered by the High Court is appropriate. No case for interference is

made out in appeals. The very essence of the VRS was the

admissibility of pension on completion of 15 years of service and other

benefits. Once the scheme was adopted and approved by the Central

Board of SBI, the clarification could not have been made to the

detriment of  employees.  The clarification did not  have effect  of the

amendment, modification, or cancellation of the VRS scheme as

approved and adopted by Board. The amendment in the Pension

Regulations of 1995 was carried out by other public sector banks with

retrospective effect in 2002, though the scheme was floated and

implemented in the year 2000­2001. However, the benefits were

extended on the strength of the VRS scheme even before amending the

Regulations of 1995. The SBI adopted the Scheme in toto and Pension

Rule 22 providing eligibility of 20 years applies only to those cases

where employees seek retirement in the ordinary course of completion

of 10 years or 20 years, as the case may be. The VRS was taken in the

specific scheme providing eligibility and benefits on completion of 15

years of service, and that constituted a concluded contract. It was not

open to the bank to alter the terms. In case the bank's submission is

accepted, it would lead to a situation that employees who have already

reached the age of superannuation, would have been entitled to take

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VRS. The bank has misled the employees, and the action could not be

said to be fair. Once an offer was accepted and after that to amend the

rules or not to amend the rules till 31.3.2000 depended on exercise of

power by SBI which may have the effect to deprive the pension when

the option was not available even to withdraw the offer as it was the

last  day  of the employment.  Rule  22  was  amended, that too  with

retrospective effect. Thus, the employees who joined service after

retirement from other services, have completed the age of 58 years and

were in employment as on 1.11.1993 were entitled to a pension. They

have also been deprived of the benefit of pension, which would have

been otherwise available to them. In case pension was not to be paid,

it was not a profitable bargain for them to forego pension only for ex

gratia benefit. It was incumbent upon the SBI to amend the Rule, in

case it was necessary to do so. Otherwise, also, the meaning of the

expression “pension” to be paid as per rules was that proportionate

pension to be awarded to the employees with 15 years’ service who

were eligible for benefits granted as specified in the circular and the

VRS scheme. The clarification issued on 11.1.2000 only pointed out

the provisions of the VRS scheme as well as the existing position of the

rule. It could not have effect to take away the benefit in any manner

which became available to the employees of obtaining the pension on

completion of 15 years of permanent pensionable service. On the one

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hand,  employees who served  for ten years  and attained  the age of

superannuation were entitled to pension and to deprive the same to a

permanent employee who rendered the service for 15 years, would be

per se  discriminatory,  unfair and  arbitrary.  Once the scheme  was

floated  and  approved, the  bank  being  State  within the  purview  of

Article 12 of the Constitution of India, it would not be permissible for

it to discriminate and act unfairly. The VRS constituted an

independent contract and was binding upon the bank. The benefits

could not have been taken away from eligible employees who accepted

VRS, which was implemented by the bank for its benefit to induct new

skills as  well as to rationalise the  workforce.  Thus, appeals  being

bereft of merit, deserve dismissal.

15. The main question is whether, under the scheme as approved

and adopted by the Central Board of SBI, the pension is admissible to

the employees on completion of 15 years of permanent service.

Connected question is whether employees have been denied benefit of

pension unfairly and arbitrarily contrary to the essential terms of the

scheme.

16. Firstly, it is  necessary to consider the nature of the package,

which was accepted in the resolution by the Central Board of Directors

of SBI in its meeting dated 27.12.2000. As already mentioned, exercise

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was done in order to rationalise the workforce as it was felt that banks

were overstaffed. The IBA advised the SBI regarding the issues

confronting the public sector banks. In the memorandum submitted to

the Central Board of Directors of SBI, the following facts were

mentioned as to the adoption of Scheme in right earnest and

requirement of manpower planning:

“The data available with IBA indicates that 43% of employees in Public Sector Banks are in the 46+ age group, and only 12% are in the 25­35 age group. This pattern has serious implications for the Banks with reference to mobility, training, development  of skills, and succession  plans for  higher­level positions. This, coupled with excess manpower wherever it exists, would come in the way of induction of new skills and proper career progression.

The Committee has recommended the introduction of a Voluntary Retirement Scheme that would assist the Banks in their effort to optimise their human resources and achieve a balanced age and skills profile in keeping with their business strategies.  IBA has advised that the Government of India has conveyed that they have  no objection  to the banks'  placing before their respective Boards of Director's proposals for adopting and implementing the Voluntary Retirement Scheme. It has been advised that Banks may adopt the scheme after obtaining their Boards' approval and implement it in right earnest.” (emphasis supplied)

"a) The  high establishment costs of the  Bank vis­à­vis the foreign banks and new private sector banks have been a matter of concern. The percentage of staff  expenses to  total expenses in the Bank is 21.85 against the percentage of 7.66 and 3.04 for foreign banks and new private sector banks, respectively. Even  if  we compare  it  with other Public Sector Banks, our ratio is adverse.

d) With the computerisation of accounting and other work at a large number of branches, manpower, which was needed for balancing of books, is now rendered surplus. This indicates an imperative need to rationalize the manpower at these branches. While we have already initiated steps for the productive redeployment  of staff  at these  branches through shift banking and seven­day banking, there still exists scope for improvement in this area. Most of these branches are situated in metropolitan and urban centers. Incidentally, the

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experience of other banks in respect of voluntary retirement schemes shows that a maximum number of applications have been received from these centers.

f) As against the average of 43% of employees in Public Sector Banks in the 46+ age group, we have 47% of the employees in this age group. Of this, 1/5th  are in the age group of 56 and above. To put it simply, 21,824 employees will reach the age of superannuation and retire by March 2005.

In the light of  the above­mentioned factors,  it will  be seen that the manpower of the Bank will undergo major changes in the ensuing years in number and deployment. Further, considering the variety of business the Bank undertakes, and its special role in the banking sector, over­emphasis on quantitative parameters would be inappropriate. An approach paper on Manpower Planning is placed at Annexure­‘A’.

Considering the various aspects of Manpower Planning, we are of the view that the Voluntary Retirement Scheme should be employed as a moderate tool to right­size the manpower in State Bank of India."

In the  light of  aforesaid,  it is clear that the VRS scheme was

devised as a tool to reduce overstaffing.  The memorandum submitted

to the Central Board contained the following significant aspects:

“Keeping in view the above, the IBA guidelines  and the feedback received from other Banks, the draft ‘SBI Voluntary Retirement Scheme (SBIVRS)’ is prepared and placed for approval at Annexure­‘B.'

It is proposed to introduce SBIVRS for employees who have as on 31­12­2000, completed 40 years of age or 15 years of service as approved by the Government of India and conveyed by IBA. In terms of the IBA scheme, the Banks’ Boards may specify any other category as ineligible. We propose to exclude the Watch and Ward staff as these positions cannot be reduced. We also propose to exclude highly skilled and qualified staff from the Scheme.  

SBIVRS will be voluntary in  nature.  The  decision to seek retirement  under  the Scheme rests  with the employee only. The management will  retain the discretion as to  whether to accept or not the request for voluntary retirement under the Scheme. We have to ensure that while, on the one hand, our Bank benefits by the rightsizing of the staff strength, on the

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other, any sudden exodus of a very large number of staff does not destabilise the normal operations of the Bank. Considering the attractive features  of the  Scheme, in terms of ex­gratia payment,  etc.,  a large number of  applications are  expected. However, the Bank will have to control the outflow according to its requirements. Towards this end, it will be necessary to retain the discretion with the management of the Bank to limit the number of employees allowed to retire in each category of staff to be covered under SBIVRS, and we propose to retain such discretion."  

                                                              (emphasis supplied)

It was proposed to introduce a VRS for employees who on

31.12.2000, completed 15 years of service as approved by the

Government of India and conveyed by IBA. So, it assumes significance

that what was approved and conveyed, in terms of the IBA scheme,

the Banks’  Boards were permitted to specify any other category as

ineligible. The SBI considering its requirement proposed to exclude the

Watch and Ward staff as these positions could not be reduced. It was

also proposed to exclude the highly skilled and qualified staff from the

scheme.

Funds outlay was also proposed in the memorandum submitted

to the Central Board as under:

“FUNDS OUTLAY As per the estimate received from Bank's actuary, an outlay of approximately Rs. 2100 crores would be required for the implementation of  SBIVRS if 10% of the employees  opt for retirement. The break­up being as under:

Ex­gratia Rs. 1300.00 crores Leave encashment Rs. 180.00 crores Additional Provision for Gratuity Rs. 140.00 crores Additional Provision for Pension                         Rs. 480.00 crores

(These estimates may undergo a change on receipt of

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clarification from Government of India as to the components of ‘Pay’ for the purpose of Ex­gratia)”

A provision was made for the pension. The bank reserved the

right to modify, amend or cancel any or all the clauses. The Deputy

Managing Director and CDO would be the competent authority.

Following is the relevant clause regarding modification of the scheme:

“MODIFICATION OF THE SCHEME Bank reserves the right to modify, amend or cancel any or all the clauses of the Scheme and to give effect thereto from any date it  may deem fit.  The  Dy.  Managing Director  and CDO would be the Competent Authority for the purpose.”

The effective date of retirement was 31.3.2001. The relevant

clause is extracted hereunder:  

“EFFECTIVE DATE OF RETIREMENT While the SBIVRS will be open to employees from 15th January 2001 to 31st January 2001 (both days included), the retirement under SBIVRS is proposed to be given effect from 31st March 2001."  

17. The letter dated 31.8.2000 annexed to memorandum submitted

to the Central Board of the SBI is also of utmost significance in order

to understand what was accepted by the Central Board. The relevant

portion of the letter dated 31.8.2000 of IBA is extracted hereunder:

“Attention is invited to letter DO No. 11/1/99­IR dated 22.05.2000, addressed to the Chief Executive of public sector banks by the Government of India, Ministry of Finance (Banking Division), wherein banks have been advised to carry out detailed manpower planning in order to adopt measures to have optimum human resource at  various  levels in keeping with the business strategies and requirements of each bank.  

At the meeting the Finance Minister had with Chief Executives of public sector banks on 13th June 2000, the human resource and man­power planning in public sector banks were reviewed,  and a  Committee  was  constituted to  examine the issues confronting public sector banks in that regard and

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suggest suitable remedial measures."  

“In order to remedy this situation with the urgency that circumstances demand, the Committee has placed before the Government two schemes, viz., Sabbatical Leave and a Voluntary Retirement Scheme that would assist the banks in their  effort to  optimise their  human resource and achieve a balanced age and skills’ profile in keeping with their business strategies. Salient features of the two schemes are given in the Annexure.

IBA, vide its letter dated 13th  July 2000, has sought no objection from the Government for circulating the schemes to the Banks for consideration and adoption by their Boards. The Government have conveyed to us that they have no objection to the banks' placing the two schemes before their respective Board of Directors for adopting and implementing the above schemes. It has been advised that the Banks may adopt these schemes for sabbatical and voluntary retirement based on the essential features of the schemes given in the Annexure, after obtaining their Board’s approval and implement them in right earnest.” (emphasis supplied)

“Banks are also requested to take special note of the following:

1. Section 10(10C) of the Income Tax Act read with Rule 2BA.

2. As per the amendments brought in by the Finance Act 2000, so long  as  the  bank complies  with the rules framed under Section 10(10C), prior approval from the Chief Commissioner or Director General of Income­tax, as the case may be, is not required for VRS.

3. Income­tax shall be deducted at source in respect of ex­gratia exceeding Rs.5.00 lakhs or such other ceiling as may be prescribed under the Income­tax Act.  

4. Only completed years of service will be reckoned for arriving at the minimum eligible service. Subject to this, fraction of service of six months and above will be reckoned as one year for the purpose of calculating the ex­gratia.

5. While exercising discretion to decline applications for VRS or to make exceptions  in the case of employees categorised as ineligible for VRS, the decision should not be discriminatory among employees who are similarly  placed and the reasons therefor should be recorded.  

6. The competent authority for accepting  VRS for the various categories/class of employee should be clearly  laid down by the Board of Directors.

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7. Banks should ensure compliance with requirements under labour legislations before giving effect to the Scheme.”

18. IBA’s letter dated 31.8.2000 makes clear the salient features of

the VRS scheme that all permanent employees with 15 years of service

were eligible to retire. Ineligible persons have also been specified. In

unqualified terms, it was mentioned in the annexures that such

employees would be entitled to the amount of ex gratia of 60 days’

salary for each completed year of service or salary for the number of

months service is left,  whichever is less.  Other benefits  admissible

were gratuity, pension including the commuted value of pension,

bank's contribution towards provident fund, and leave encashment as

per rules. Thus, scheme was to grant pension to all such employees

who opted  for VRS on completion of  15 years of  service and other

benefits as specified in the scheme.   The Government of India,

Ministry of Finance, Department of Economic Affairs, (Banking

Division), that it communicated approval vide letter dated 29.8.2000

to IBA, it was sent to the SBI also, the same is extracted hereunder:

“F. No. 11/1/99­IR (Vol.II) Government of India Ministry of Finance

Department of Economic Affairs (Banking Division)

New Delhi, dated the 29th August 2000 To  The Chairman Indian Banks‘ Association  MUMBAI

22

Sub:­ Human Resource Management and Manpower Planning in Public Sector Banks­Introduction of a Voluntary Retirement Scheme/Scheme for Sabbatical Leave.  

Sir,  I am directed to refer to IBA's letter No. PD/ACAP/GOVT/521 dated 13th July 2000 sending therewith a copy of the interim report of the Committee on Human Resource Management in Public Sector Banks and requesting for no objection from the Government for circulating to banks Voluntary Retirement Scheme and Scheme for granting Sabbatical Leave for consideration and adoption by their Boards, and to say that Government has no objection to the proposals contained therein.

2. The draft circular letter sent by IBA has been slightly modified. Copy of the modified draft is enclosed herewith.  

3. It is requested that  a  copy  of the  circular issued to the banks may please be sent to Banking Division for record.  

Yours faithfully

Sd/­ (U.P. SINGH) DIRECTOR (IR)”

19. The agenda submitted on 27.12.2000 for  consideration of the

Central Board of SBI along with resolution are extracted as under:

“AGENDA NO.3

Man­ Power Planning and SBI Voluntary Retirement Scheme (SBI VRS)

Submitted Memorandum dated  the 26th December 2000 by the Deputy Managing Director & Corporate Development Officer, recommending that for the reasons stated therein, approval be accorded for the proposals contained in the Memorandum as also for adopting the stated approach to manpower planning and introduction SBIVRS in terms of the provisions contained in the  Scheme  at  Annexure ‘B‘ of the Memorandum.

Copies of the Memorandum were placed before the Directors present at the Meeting.  

‘‘APPROVED” (SEAL)

23

20. Annexure ‘B’ to the memorandum contained the VRS. The VRS

was prepared in view of the guidelines of the IBA. The amount of  ex

gratia and other benefits specified in the scheme under clauses 5/ 6 of

the scheme are extracted hereunder:

“5.  Amount of Ex­gratia:

The staff members whose request for retirement under SBIVRS has been accepted  by  Competent  Authority  will  be  paid  an amount of  ex­gratia of  60 days‘  salary  (pay plus stagnation increments plus dearness allowance) for each completed year of service  (for this purpose fraction of service of six months and above will be taken as one year and accordingly service of less  than six  months will  not  be counted)  or salary  for the number of months service is left, whichever is less. Fraction of a month, if any, will be ignored.

‘Relevant Date‘ means the date on which the employee ceases to be in service of the Bank as a consequence of the acceptance of the Bank as a consequence of the acceptance of the request for voluntary retirement under the Scheme. For the purpose of calculation of ex­gratia, 60 days‘ salary mentioned  in the Scheme is  to be  taken as equivalent  to  2 months‘ salary (with reference to salary for the month in which employee is relieved from service on Voluntary Retirement.

Income Tax shall be deducted at source in respect of ex­gratia exceeding Rs. 5.00 lakhs or such  other ceiling as may be prescribed under the Income Tax Act on the relevant date.“

The benefits were as under:

“6.  Other benefits

(a) Gratuity as payable under the extant instructions on the relevant date.

(b) Provident Fund contribution as per State Bank of India Employees‘ Provident Fund Rules as on relevant date.  

(c) Pension in terms of State Bank of India Employees‘ Pension Fund Rules on the relevant date (including commuted value of pension).

(d) Encashment of balance of Privilege Leave, as applicable, on the relevant date.

24

(e) Respective facilities extended to officers/others such as retention  of accommodation, telephone, car, continuation  of housing loan, etc. will be extended to officers. Others retiring under SBIVRS as per present dispensations, at the discretion of Competent Authority. However, in such cases of retention of physical facilities, 50% of the amount of ex­gratia payable will be released only after the employee surrenders the facility. No interest, however, will be paid for the amount so withheld. All other outstanding loans/advances will have to be repaid before date of retirement under SBIVRS, failing which the amount of ex­gratia and other terminal benefits payable to the employee will be appropriated towards the outstanding loans/advances; and the balance only will be payable to the employee.”

21. Most significantly, the scheme of the IBA, accepted by the Board

on 27.12.2000, was for providing pension on completion of 15 years of

service. The pension specified in clause 6 of scheme was to be worked

out in terms of the Pension Fund Rules including the commuted value

of the pension. It was not mentioned in the VRS adopted by the SBI

that the person on completion of 15 years would not be entitled to the

benefit of pension. On the other hand, proposal of IBA, as approved by

the Government of India, was accepted in toto by SBI.  When gauged in

terms of the proposals of the IBA, the essential feature was that an

employee was entitled to  get  pension on completion of  15 years  of

service. The meaning of the expression "pension” in terms of the rules

would be proportionate pension on completion of 15 years of service as

per the terms of calculation provided in Rule 23 of the Pension Rules.

VRS is an independent contract and the background in which it was

floated, pension on completion of 15 years of service was an essential

25

part of the scheme of VRS 2000, as approved by the Government and

floated by the IBA and adopted by all the Banks, and Pension Rules

were to be amended accordingly.

22. The Government of India suggested to the IBA to amend

Regulation 29 of the Regulations of 1995 so that the employees do not

lose the  benefit of  pension, the IBA may  work  out  modalities  and

suggest amendments, if any, required to be made in the  Pension

Regulations to ensure that the employees get the benefit of pension.

The letter dated 5.9.2000 of Government of India is extracted

hereunder:

“F. No. 4/8/4/2000­IR Government of India, Ministry of Finance, Department of Economic Affairs (Banking Division) New Delhi, 5­9­2000

To The Personnel Advisor, Indian Banks’ Association, Mumbai Sub.: Amendment to Regulation 29 of the Pension Regulations. Sir, I am directed to refer to this Division's Letter No. 11/1/99 IR dated 29­8­2000, conveying the Government's no objection for circulation of Voluntary Retirement Scheme in public sector banks. The Scheme, inter alia, provides that employees with 15 years of service or 40 years of age shall be eligible to take voluntary retirement under the Scheme. As per the provisions contained in Regulation  29 of the Pension Regulations, an employee can take voluntary retirement after 20 years of qualifying service and thereafter becomes eligible for pension. Thus, employees having rendered 15 years of service or completing 40 years of age but not having completed 20 years

26

of service shall not be eligible for pensionary benefits on taking voluntary retirement under the Scheme. In order to ensure that such employees do not lose the benefit of pension, IBA may work out modalities and suggest amendments, if any, required to be made in the Pension Regulations to ensure that these employees also get the benefit of pension.

Yours faithfully, sd/­

(U.P. Singh) Director (IR)”

23. SBI issued a circular on 10.1.2001 with respect to the

withdrawal  of the  application  submitted  under the  scheme. It  was

decided that the employee could withdraw the application on or before

15.2.2001 by making a written request.

24. Clarification was issued on 15.1.2001 to a query raised, whether

or not the employees on completing 15 years of pensionable service

would be entitled to pensionary benefits. Following is a relevant

portion:

“3. Whether or not the employees, completing 15 years of pensionable service as on relevant date (date of retirement under SBIVRS), will be entitled for pension benefits?

In this connection, we invite a reference to para   6(c) of the Scheme forwarded under the cover of Staff Circular letter No. CDO/81 dated 30/12/2000. The payment of pension to the employee retiring under SBIVRS would be governed by State Bank of India Employees Pension Fund Rules on the relevant date (including commuted value of pension). However, as per existing rules, employees who have not completed 20 years of Pensionable Service are not eligible for pension.”

It is clear from answer that the staff circular dated 30.12.2000

was reiterated. Payment of pension to an employee retiring under VRS

would be governed by rules on the relevant date, i.e., 31.3.2001. At

27

the same time, the position of the existing rule was  indicated that

those employees who had not completed 20 years of pensionable

service were not eligible for a pension. It was not clarified what was

the meaning and purport of para 6(c) of the scheme. It was not

mentioned that an employee would not be entitled to pension on 15

years of  service as per the scheme approved by the Government of

India and floated by the IBA and adopted by the Central Board of SBI.

The above clarification being in form of opinion, could not be said to

have caused a modification, amendment, or cancellation of any of the

clauses of VRS or resolution passed by the Board, nor it was so stated.

It was necessary to state that on completion of 15 years of service,

employees would not be paid pension.  The existing rule position was

known to everybody, whereas the scheme was framed for providing

pension on completion of 15 years of service.

25. Rule 22 of the Pension Rules of SBI as it existed up to 9.3.2001

and amended are extracted hereunder:

Existing Rule

“22(i) A member shall be entitled to a pension under these rules on retiring from the Bank’s service­

(a) After having completed 20 years' pensionable service provided that  he has attained  the age of  50 years  or  if  he  is in  the service of the Bank on or after 01.11.93, after having completed ten years pensionable service provided that he has attained the age of  58 years.

(b) After having completed twenty years' irrespective of the age he shall have attained if he shall satisfy the authority competent to sanction his retirement by approved medical certificate or

28

otherwise that he is incapacitated for further active service; (c) After having completed twenty years pensionable service,

irrespective of the age he shall have attained at his request in writing;

(d) After twenty­five years' pensionable service.“

Amended Rule

“22(i)  A member shall  be  entitled  to  a  pension under these rules on retiring from the Bank’s service­

(a) After having completed twenty years' pensionable service provided that he has attained the age of fifty years or if he is in the service of the Bank on or after 01.11.93, after having completed 10 years, pensionable service provided that he has attained the age of fifty­eight years or if he is in the service of the bank on or after 22.05.1998. After having completed ten years, pensionable service provided that he has attained the age of sixty years.

(b) After having completed twenty years' pensionable service, irrespective of the age he shall have attained if he shall satisfy the authority competent to sanction his retirement by approved medical certificate or otherwise that he is incapacitated for further active service;

(c) After having completed twenty years pensionable service, irrespective of the age he shall have attained at his request in writing;

(d) After twenty­five years' pensionable service."

26. It is clear from Rule 22 that pension is admissible to an

employee thus:

1) After  having completed 20 years’  pensionable  service provided

that he has attained the age of 50 years; or

2) If he is in the service of the Bank on or after 01.11.1993, after

having completed 10 years pensionable service provided that he

has attained the age of 50 years; or

3) If he is in the service of the Bank on or after 22.05.1998, after

having completed 10 years pensionable service provided that he

has attained the age of 60 years.

29

27. Rule 22(1)(c) was incorporated in the Pension Fund Rules w.e.f.

20.9.1986 when the bank decided  inter alia  to introduce VRS on

completion of 20 years of service. The unamended rule 22(i)(a)

provided the normal age of retirement to be 58 years. Thereafter, as

per the guidelines issued by the Government on 22.5.1998, the age of

retirement was increased from 58 to 60 years. Accordingly, Rule 22(i)

(a)  was  proposed to  be  amended  on  30.1.2001,  and instead  of  58

years, the age of retirement of 60 years was to be incorporated. On

28.5.1998, the Executive Committee of the Central Board of SBI

pending amendment to the related service rules adopted the age of

retirement as 60 years.  The amendment was notified on 31.3.2001

and approved by the Trustees of the SBI Employees’ Pension Fund on

30.10.2001.

28. Similar scheme of VRS concerning nationalised banks was

implemented according to the decision of the Government of India. In

Punjab & Sind Bank, it was to remain open from 1.12.2000 to

31.12.2000; Punjab National Bank: 1.11.2000 to 30.11.2000; Bank of

India: 15.11.2000 to 14.12.2000; Union Bank of India: 1.12.2000 to

31.12.2000; United Bank of India: 1.1.2001 to 31.1.2001. In SBI, the

said scheme was adopted by the Central Board on 27.12.2000.

30

29. The  State  Bank  of India  was  constituted  under the  SBI  Act,

1955. The nationalised banks were taken over in terms of the Banking

Companies (Acquisition and Transfer of Undertakings) Act, 1970.

Under the Act of 1970, the Punjab National Bank (Employees) Pension

Regulations, 1995, were framed. Regulation 28, provided pension on

attaining the age of superannuation, and Regulation 29 provided

pension on voluntary retirement on completion of 20 years of

qualifying service. Regulation 29(5), applicable to the banks mentioned

above,  provided that the  qualifying  service  of an  employee retiring

voluntarily under the Regulation shall be increased by a period not

exceeding five years, subject to the condition that the total qualifying

service rendered by such employee shall not exceed 33 years.

30. The VRS 2000 came up for consideration before this Court in

Bank of India & Ors. v. O.P. Swarnakar & Ors., (2003) 2 SCC 721 in

the context of Regulation 29(5) of Regulations, 1995. The Court held

that the scheme is contractual and provided for pensionary benefits on

completion of 15 years of service. The decision was followed in  HEC

Voluntary Retd. Employees Welfare Society v. Heavy Engineering

Corporation Ltd., (2006) 3 SCC 708.

31. Due to introduction of Scheme, Regulation 28 of Regulations of

1995 was proposed to be amended. It was amended in the year 2002

31

with a retrospective effect  from 1.9.2000. By way of  amendment,  a

proviso has been inserted in Regulation 28 thus:

“28.  Superannuation pension.—Superannuation pension shall be granted to an employee who has retired on his attaining the age of superannuation specified in the Service Regulations or Settlements.”

“Provided that pension shall also be granted  to an employee who opts to retire before attaining the age of superannuation, but  after having served for a minimum period of 15 years in terms of any scheme that may be framed for the purpose by the Bank’s Board with the concurrence of the Government.”

         (emphasis supplied)  

32. The employees who opted for VRS on completion of 15 years of

service within the specified period in 2000/2001, were given the

benefit of pension. The Regulations came to be amended in 2002 with

the retrospective effect. However, the benefit under Regulation 29(5)

was not extended to the optees/employees who completed 20 years of

service by adding 5 years of qualifying service. Regulations 29(1) and

29(5) applicable to the said banks are extracted hereunder:  

“29.  Pension on voluntary retirement.—(1) On or after the 1st day  of  November  1993  at  any time,  after  an  employee  has completed twenty years of qualifying service he may, by giving notice of not less than three months in writing to the appointing authority retire from service:     Provided that this sub­regulation shall not apply to an employee who is on deputation or on study leave abroad unless after  having  been transferred or having returned to India  he has  resumed charge of the post in India  and has served for a period of not less than one year:    Provided further that this sub­regulation shall not apply to an employee who seeks retirement from service for being absorbed permanently in an  autonomous  body or a  public sector undertaking or company or institution or body, whether incorporated or not to which he is on deputation at the time of seeking voluntary retirement:

32

Provided that this sub­regulation shall not apply to an employee who is deemed to have retired in accordance with clause (1) of Regulation 2.  x x x  (5)  The qualifying service of an employee retiring voluntarily under this Regulation shall be increased by a period not exceeding five  years,  subject to the condition  that the  total qualifying service rendered by such employee shall not in any case exceed thirty­three years and it does not take him beyond the date of superannuation.”

33. The scheme in question came up for consideration in  O.P.

Swarnakar & Ors. (supra), in which SBI was one of appellants in C.A.

Nos.3561­65/2002, the appeals were decided by this Court by a

common judgment. It noted that reference to pension as per rules was

made for computation of pension, and the employees who had

completed 15 years of service were to be extended the benefit of VRS

2000 along with pension and other benefits. IBA wrote a letter dated

11.12.2000 to all public sector banks for amending Pension

Regulations, 1995. The IBA mentioned that pension was to be paid to

the employees as per VRS 2000. They would be eligible for  pro­rata

pension; as such,  Regulation  28  be  amended.  The employees  who

applied for voluntary retirement after having rendered 15 years’

service, under a special/ad hoc scheme formulated with the specific

approval of the  Government  and the  Board of  Directors  would  be

eligible for pro­rata pension for the period of service rendered as if they

were to retire on attaining the age of superannuation on that date. The

letter made it clear that the Government of India approved the pension

33

to be given on completion of 15 years of service.  The scheme was for

extending the benefit of pension to the employees retiring on

completion of 15 years of permanent service, and the Government of

India also  desired that the IBA  advised  banks to  make  necessary

amendments to their pension regulations, as mentioned in the

Annexure. Thus, the essence of the VRS scheme was the benefit of

pro­rata  pension as per the rules on completion of 15 years of

pensionable service.

34. It is apparent that the very fulcrum of the scheme was a felt

need for  inducting new workforce, with adequate knowledge of  new

skills such as modern technology, foreign exchange, venture capital, e­

commerce, money management, etc. as pointed out by the Ministry of

Finance in its letter dated 22.5.2000. The banks were overstaffed and

for effective management and manpower planning, the desirability of

introducing VRS was felt in  order to rationalise the workforce  and

skill. Hence a Committee was constituted by the Central Government.

In pursuance of report of the Committee, a policy decision was taken

to frame the VRS. The scheme applied to employees who, on the date

of the application, completed 15 years of service. The employees

specified therein were otherwise not eligible to seek voluntary

retirement on completion  of 15 years  under the rules/regulations.

Under the scheme floated by the other banks, identical reliefs were

34

admissible, as in SBI VRS. The Scheme of Punjab National Bank is

extracted hereunder:

“7.  x x x “Amount of ex gratia

An employee seeking voluntary retirement under the Scheme will  be  entitled to the  ex  gratia  amount  mentioned below in para (a) or (b), whichever is less:

(a)  60 days’  salary  (pay plus stagnation  increments plus special  pay plus dearness relief) for each completed year  of service;

OR (b) salary for the number of months of service left;

Other benefits

An employee seeking voluntary retirement under the Scheme will be eligible for the following benefits in addition to the ex gratia amount mentioned in para 6 above of this Scheme:

(i)  Gratuity as per the Payment of Gratuity Act,  1972 or gratuity payable under the Service Rules, as the case may be, as per existing rules.

(ii)(a) Pension (including commuted value of pension) as per PNB (Employees) Pension Regulations, 1995.

OR (b) Bank’s contribution towards PF as per existing rules. (iii) Leave encashment as per existing rules.”

(emphasis supplied)

35. The  eligibility  criteria in  all the  schemes, including  SBI  VRS,

clearly provided that employees who completed 15 years of service and

particular age shall  be eligible to apply. The benefits to which they

were entitled, were culled out.  In other banks, the pension was as per

Pension Regulation, 1995.   Thus, on eligibility of an employee,

admissibility of the available reliefs in Scheme followed  i.e.,  the

amount of ex gratia and other benefits, including pension, were to be

paid as provided in the scheme. Otherwise, there was no purpose of

retiring an employee with 15 years of service as they were not eligible

35

for retirement as per the rules before completion of 20 years of service

in all nationalised banks as well as SBI. A reference to the

admissibility of the pension as per rules/ regulations was made in all

the VRS to mean that proportionate pension shall be admissible as

provided in rules, this Court has noted it in O.P. Swarnakar  (supra),

thus:

“49. An offer indisputably can be made to a group of persons collectively which is capable of being accepted individually, but the question which has to  be posed and answered  is  as to whether having regard to the service jurisprudence; the principles of the Indian Contract Act would be applicable in the instant case. It is the specific case of the “banks” that the Schemes had been floated by way of contract. It does not have any statutory flavour. Reference to the Pension Scheme framed under the Regulations was made for computation of the pension.”

(emphasis supplied)

36. Significantly in O.P. Swarnakar (supra), this Court observed that

employees must have proceeded to apply for VRS on the basis even

though they have merely completed 15 years of service, which was not

a qualifying service,  under the  Pension Regulations of  Bank, they

would be entitled to benefits in terms of the VRS scheme. The Court

observed thus:

“89.  Furthermore, a large number of employees have withdrawn their offer only when a proviso was sought to be added to Regulation 28 aforementioned. In terms of the Scheme the employees, who expected to get benefits of sub­ regulation (4) of Regulation 29 would be deprived therefrom. It is not in this dispute that the qualifying period for receiving pension was 20 years. Only upon completion of 20 years, in terms of the statutory regulation contained in Regulation 29, an employee could opt for voluntary retirement, and in terms

36

thereof, he would be entitled to the benefits specified therein. The said Regulations had specifically been mentioned for the purpose  of computation,  which  would include invocation  of sub­regulation (4) of Regulation 29, providing for relaxation of 5  years towards the qualifying  period.  The employees  must have proceeded on the basis that despite the  fact  that they have merely  rendered 15 years  of  service,  which was not  a qualifying service under the Regulations, they would be entitled to the pensionary benefits in terms of the Scheme. By introducing the proviso to Regulation 28 pension was sought to be made pro rata in place of full pension.” (emphasis supplied)

37. In  O.P. Swarnakar & Ors. (supra), it was held that the scheme

was not a part of statutory regulations. It was in the realm of contract.

That being so, the Central Government did not need to place the same

before Parliament;  and secondly, if the  same was a regulation, the

laying­down rule is merely directory and not mandatory. This Court

relied upon the decisions in Jan Mohd. Noor Mohd. Bagban v. State of

Gujarat, AIR 1966 SC 385 and Atlas Cycle Industries Ltd. v. State of

Haryana; 1979 (2) SCC 196 and held that the scheme could not be

said to be bad in law, thus:

“124.  Firstly, the Scheme is not a part of the statutory regulation. It was in the realm of contract. That being, so it was not  necessary  for the Central  Government  to  place the same before Parliament.  125. Secondly, even if the same was a regulation, the laying­ down rule is merely a directory one and not mandatory. 126. In Jan Mohd. case, AIR 1966 SC 385, the law is stated in the following terms: (AIR pp. 394­95, para 18)

“18. Finally, the validity of the rules framed under Bombay Act 22 of 1939 was canvassed. By Section 26(1) of the Bombay Act, the State Government was authorised to make rules for the purpose of carrying out the provisions of the Act. It was provided by sub­section (5) that the rules made under Section 26 shall  be laid before each of the Houses of the Provincial

37

Legislature at the session thereof next following and shall be liable to be modified or rescinded by a resolution in which both Houses concur, and such rules shall, after notification in the Official Gazette, be deemed to have been modified or rescinded accordingly. It was urged by the petitioner that the rules framed under Bombay Act 22 of 1939 were not placed before the Legislative Assembly or the Legislative Council at the first session,  and therefore they  had no  legal validity.  The rules under Act 22 of 1939 were framed by the Provincial Government of Bombay in 1941. At that time, there was no Legislature in session, the Legislature having been suspended during the emergency arising out of World War II. The session of the Bombay Legislative Assembly was convened for the first time after 1941 on 20­5­1946, and that session was prorogued on 24­5­1946. The second session of the Bombay Legislative Assembly was convened on 15­7­1946, and that of the Bombay Legislative Council on 3­9­1946 and the rules were placed on the Assembly Table in the second session before the Legislative  Assembly on 2­9­1946 and before the Legislative Council on 13­9­1946. Section 26(5) of Bombay Act 22 of 1939 does not prescribe that the rules acquired validity only from the date on which they were placed before the Houses of Legislature. The rules are valid from the date on which they are made under Section 26(1). It is true that the Legislature has prescribed that the rules shall be placed before the Houses of Legislature, but failure to place the rules before the Houses of Legislature does not affect the validity of the rules, merely because they have not been placed before the Houses of the Legislature. Granting that the provisions of sub­section (5) of Section 26 by reason of the failure to place the rules before the Houses of Legislature were violated, we are of the view that sub­section (5) of Section 26 having regard to the purposes for which it is made, and in the context in which it occurs, cannot be regarded as mandatory. The rules have been in operation since the year 1941, and by virtue of Section 64 of Gujarat Act 20 of 1964, they continue to remain in operation."

127. In Atlas Cycle Industries' case, (1979) 2 SCC 196, the same view has been reiterated.

128. We, therefore, are of the opinion that the Scheme in question cannot be said to be bad in law.”

38. The Court concerning the provision of withdrawal held that the

relevant clause of the scheme created an enforceable right in case the

State Bank failed to adhere to its preferred policy.

38

39. In our opinion, the reference in the SBI VRS to the admissible

benefits, like pension shall be as per the pension rules, was for the

purpose of computation of pension. It is apparent from a reading of

the scheme that proportionate pension was admissible to employees

as  noted in para  49 of  O.P. Swarnakar & Ors. (supra). A similar

expression was used in the schemes of nationalised banks also.  This

Court has noted expression in the scheme that pension as per rules to

mean for computation of pension.  The formula for computation for a

pension is provided in Rule 23 of the SBI Pension Rules.  

40. It is of utmost significance that the Central Board in its meeting

dated 27.12.2000 accorded approval “for the proposals contained in

the Memorandum.” A bare perusal of the memorandum makes it clear

that  the  letter  of IBA dated 31.8.2000 was enclosed as part  of  the

memorandum submitted to the Central Board. In the memorandum, it

was mentioned "that the Government of India conveyed that they had

no objection to the banks'  placing before their respective Boards of

Director's proposals for adopting and implementing the Voluntary

Retirement  Scheme. It  advised that  Banks may  ‘adopt’ the scheme

after obtaining their Boards' approval and implement it in ‘right

earnest’." The memorandum also contained that the employees who

completed 15 years of service were to be the beneficiaries of VRS as

approved by the Government of India and conveyed by the IBA. The

39

approval by Government of India and scheme, conveyed by IBA, was to

provide for the benefit of pension on completion of 15 years of service.

The same was an essential condition of the scheme. The Annexure,

which was part of the memorandum, provided inter alia the benefit of

pension, including the commuted value of pension without any rider of

completion of 20 years period of service. Once SBI accepted the

proposals contained in the memorandum, when we gauge the scheme

in the light  of the subject  matter  of the  memorandum which  was

unconditionally approved, it became clear and  beyond the  pale of

doubt that in VRS (Annexure B) inasmuch as the expression to

provide the benefit of pension as per rules was only for providing the

proportionate pensionary benefit of the qualifying service on and above

15 years, rendered by an employee.   

41. The IBA advised the banks for amending the rules. The

Government of India, Ministry of Finance, also issued a letter dated

5.9.2001 to the Bank to amend the rules. There was a proposal to

amend the rules.  After the scheme was implemented in 2000, the

nationalised  banks, including the  Punjab  National  Bank, amended

their rules in 2002 with retrospective effect. However, the fact remains

the VRS schemes were implemented by banks governed by the

Banking Companies Act, 1970, by making payment of pension though

Regulation 28 of Regulation of 1995 provided for 20 years of qualifying

40

service at the relevant time. Once a particular scheme of VRS, based

on the recommendations of Committee formed by Government of

India, was formulated and floated by IBA. In all fairness, it was

required to be implemented in right earnest in that form in which it

was approved and adopted by the Board of Directors of SBI on

27.12.2000. In case the Board of Directors were of the opinion that the

scheme was not acceptable to  them, they could have rejected  it  or

could have stated they reject the proposal for paying pension on

completion of 15 years of service which was the essence of a scheme

formed to reduce workforce of Bank and for achieving other objectives.

Nonetheless, on the contrary, resolution dated 27.12.2000 indicates

that the proposals of IBA/Government was approved unconditionally.

Thus, in case it was so necessary to amend the pension rules as done

by other banks, it was incumbent upon the State Bank of India to

amend its rules either after implementation of the scheme as was done

by other banks or before giving effect to VRS.

42. It is also significant to mention that SBI accepted the scheme as

approved by  the  Government  and  floated  by  IBA. In  case  SBI  had

declined to accept or wanted to modify, it was necessary for it to take

approval of Government of India as to its scheme. As per section 49,

the Central Government has the power to make rules. Section 50 deals

with the power of Central Government to make regulations. Section

41

50(1) provides that the  Central  Board, after consultation  with the

Reserve Bank of India and with the previous sanction of the Central

Government, can make Regulations. Under Section 50(2)(o), the

Regulations can  be  made  by the  Central  Board  with the  previous

sanction of the Central Government with respect to superannuation

pension and other funds for the benefit of the employees of the State

Bank. Section 50(2)(o) reads:

“50. Power of Central Board to make regulations.—(1) The Central Board may, after consultation with the Reserve Bank and with the previous sanction of the Central Government [by notification in the Official Gazette,] make regulations, not inconsistent  with this Act and the rules  made thereunder, to provide  for  all  matters  for  which provision  is expedient  for  the purpose of giving effect to the provisions of this Act.

     (2) In particular, and without prejudice to the generality of the foregoing power, such regulations may provide for—

x x x (o) the  establishment  and maintenance of  superannuation

pension, provident or other funds for the benefit of the employees of the State Bank or of the State Bank or of the dependents of such employees or for the purposes of the State Bank, and the granting of superannuation allowances, annuities and pensions payable out of any such fund;]”

43. Thus, it is apparent that the Central Board of SBI could not have

framed a scheme different than the one approved by the Central

Government on its own, nor could have implemented it without

approval of the Central Government. In case it wanted to modify or

amend the scheme, as approved by the Government of India, it was

incumbent upon it to send its modified scheme to the Central

42

Government for approval. No scheme for VRS could have been framed

without approval of the  Government of India. In fact, the  Central

Board accepted the proposal of IBA, as approved by the Government of

India. In case SBI’s stand is accepted, its scheme would have been

valid as no modification could have been made without approval of the

Government of India.  In fact, no such modification was made, as held

above.

44. Once it approved the Scheme SBI being an instrumentality of

State under  Article 12, is bound  by the principle of fairness and

representation   made that it accepted the contents of memorandum

and the scheme floated by IBA and invited the applications based on

approving the memorandum which contained proposal of pension on

rendering 15 years of permanent pensionable service, it could not later

on wriggle out of its obligation taking a rigmarole by claiming shelter

of the Rules or by not amending the Rules or by issuing a clarification

which was fanciful, irrational and contrary to the spirit of the

resolution of the Board. It would amount to an unfair and

unreasonable action to deprive the employees of the benefit of pension

because of the decision taken by the Central Board of Directors.

45. SBI is bound by resolution of Central Board of Directors.

The Scheme was with the approval of the Government of India and

43

accepted, implemented by all the banks in true spirit except by SBI. It

cannot be permitted to act unfairly by virtue of having superior

bargaining power by issuing vague clarification to the detriment of the

economic interest of the employees.  Clarification  did  not  have the

effect of re­writing or superseding the resolution of the Central Board

nor  effect  of  making modifications in the resolution passed by  the

Central Board of the SBI.

46. The VRS scheme was not floated by the SBI on its own volition.

It was pursuant to an exercise that was undertaken by the IBA in view

of the recent developments of modern technology considering the age

group of the employees in the bank, the need to have a new skill, and

to rationalise the manpower; a decision was taken. It was decided at

the Government level to provide pension after completion of 15 years

of service as a special measure, the banks were bound to implement it

in that manner or not at all. The Central Board of Directors of the SBI

accepted the VRS proposal of Government and IBA without any

reservation of not providing pension along with other benefits, as

mandated in the VRS scheme. The action of the instrumentality of the

State cannot be violative of Article 14. It cannot be permitted to act

arbitrarily. Articles 15 and 16 provide for equality and provide for an

umbrella against discrimination.

44

47. Though the Deputy General Manager was authorised by the

Central Board of Directors to amend, modify or cancel the VRS.  The

Rules were amended by other banks later in 2002. It was not stated in

answer to the query that under the VRS scheme, a person who has

rendered  15  years  of  qualifying  service  would  not  be entitled to  a

pension. Nor it was so stated in resolution dated 27.12.2000 of the

Central Board of SBI.   That apart, Deputy General Manager tried to

interpret VRS scheme in isolation without considering what was

approved by the Board. Not only the scheme but also the

memorandum have to be read together to understand resolution of

Board. Once the memorandum containing the IBAs proposal of

providing pension was approved in absolute terms,  the clarification

could not be of any value to dilute the otherwise clear and

unambiguous resolution of the Board of Directors. The Deputy

General Manager did not have any such wide and arbitrary power to

defeat the claim of the employees  for  pension on completion of  15

years of permanent service,  which  was their right.   The  action  of

D.G.M. could not be said to be in accordance with the resolution. The

pension was the essence of the scheme, depriving it could not be said

to be authorised, such action can only be termed as unfair and

unreasonable and patently violative of Articles 14, 16, and 21 of the

Constitution of India.

45

48. Yet another aspect which cannot be lost sight is that the bank

mentioned in the scheme that the benefit would be admissible as per

the rule which prevails on the appointed day, i.e., 31.3.2001. Thus, it

is apparent that when VRS scheme was floated, it was in

contemplation of amendment of rules which was suggested by the IBA

and the Government of India in its communication dated 5.9.2001 so

that employees were not deprived of the benefit of pension.  

49. The question arises  in case the bank accepts  the proposal  of

VRS, and does not alter its rules, can employees be deprived of the

benefit of pension in such an unconscionable manner over an event on

which they had no control. It would be nothing, but an outcome of

unfair and arbitrary act in case the SBI never intended to act upon the

scheme it ought not to have accepted it, and once it approved VRS, it

was incumbent upon it to amend its rule, if necessary, as was done by

other banks in 2002 after scheme worked out in the year 2000. Even

otherwise once it accepted the proposal of the Government of India, it

would be violative of provisions of Articles 14 and 16 to permit it to

wriggle out of its  obligation under the guise that  the bank did not

amend its rules or pension was not admissible as per existing rules,

mainly when the scheme provided for eligibility for pension on

completion of 15 years, that formed independent contract. If the bank

46

is permitted to get rid of the scheme due to Rule position, then the

scheme itself would become void and unenforceable. Bank cannot act

in a  fanciful  manner,  particularly  with respect to  retirement  under

VRS which was contractual and deny benefit of pension, a right

accrued to the  employees for receiving the  pension in view  of the

memorandum and the resolution passed by the Central Board of

Directors adopting memorandum and the SBI­VRS.

50. (a).   The rights under contract cannot be taken away, and they

become enforceable by a court of law. Bank cannot be permitted to

make a representation and later on wriggle out of its obligation. It is

not permissible to make a “misrepresentation”. Under section 19 of

the  Contract  Act,  when consent is  obtained  by  coercion, fraud,  or

‘misrepresentation,' the  agreement is voidable at the option of the

aggrieved party. In Central Inland Water Transport Corporation Ltd. &

Anr. v.  Brojo  Nath  Ganguly  &  Anr., (1986)  3  SCC 156, this  Court

considered  the contract  of  employment  between  the Central Inland

Water Transport Corporation and its employees and also the rules. In

that context, observed thus:

“75.  Under Section 19 of the Indian Contract Act, when consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused. It is not the case of either of the contesting respondents that there was any coercion brought to bear upon him or that any fraud or misrepresentation had been practiced upon him. Under Section  19­A,  when consent to an  agreement is caused  by

47

undue influence, the agreement is a contract voidable at the option of the party whose consent was so caused and the court may set  aside any such contract  either  absolutely  or  if the party  who was entitled to  avoid  it  has received  any benefit thereunder, upon such terms and conditions as to the court may seem just. Sub­section (1) of Section 16 defines "Undue influence" as follows:

“16. ‘Undue influence’ defined.—(1) A contract is said to be induced by  ‘undue  influence’  where  the relations subsisting between the parties are such that one of the parties  is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other.” The material provisions of sub­section (2) of Section 16 are as follows:

“(2) In particular and without prejudice to the generality of the foregoing principle, a person is deemed to be in a position to dominate the will of another—

(a) where he holds a real or apparent authority over the  other ....” We need not trouble ourselves with the other sections of the Indian Contract  Act  except  Sections 23  and 24.  Section 23 states that the consideration or object of an agreement is lawful  unless inter alia the court regards it as  opposed to public policy. This section further provides that every agreement of which the object or consideration is unlawful is void. Under Section 24, if any part of a single consideration for one  or  more  objects, or anyone or  any  part of any one of several considerations for a single object is unlawful, the agreement is void. The agreement is, however, not always void in its entirety for it is well settled that if several distinct promises are made for one and the same lawful consideration, and one or more of them be such as the law will not enforce, that will not of itself prevent the rest from being enforceable. The general rule was stated by Willes, J., in  Pickering  v. Ilfracombe Ry. Co. (1868) LR 3 CP 235 (at p. 250) as follows:

"The general rule is that, where you cannot sever the illegal from the legal part of a covenant, the contract  is altogether void; but where you can sever them, whether the illegality be created by statute or by the common law, you may reject the bad part and retain the good."

(emphasis supplied)

(b). In Brojo Nath Ganguly  (supra), this Court considered the concept

of unconscionable bargain and as to actions showing no regard for

conscience; irreconcilable with what is right or reasonable, observed

thus:

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“76. Under which head would an unconscionable bargain fall? If it falls under the head of undue influence, it would be voidable  but if it falls  under the  head  of  being  opposed to public policy, it would be void. No case of the type before us appears to have fallen for decision under the law of contracts before any court in India nor has any case on all fours of a court in any other country been pointed out to us.  The word “unconscionable” is defined in the     Shorter Oxford English Dictionary   ,  Third Edition,  Volume  II,  page 2288,  when used with reference to actions, etc. as "showing no regard for conscience; irreconcilable with what is right or reasonable." An unconscionable bargain would, therefore, be one which is irreconcilable with what is right or reasonable.”

(emphasis supplied)

(c). Chitty on Contracts  was referred in  Brojo Nath Ganguly  (supra)

about the old ideas of freedom of contract in modern times, 25th Edn.,

Vol. 1, para 4, Chitty observed:

“79. In this connection, it is useful to note what Chitty has to say about the old ideas of freedom  of contract in modern times. The relevant  passages are to  be found in  Chitty on Contracts, 25th Edn., Vol. I, in paragraph 4, and are as follows:

"These ideas have to a large extent lost their appeal today. 'Freedom of contract,' it has been said, 'is a reasonable social ideal only to the extent that equality of bargaining power between contracting parties can be assumed, and no injury is done to the  economic interests  of the  community  at large.' Freedom of contract is of little value when one party has no alternative between accepting a set of terms proposed by the other  or  doing  without the  goods  or services  offered.  Many contracts entered into by public utility undertakings and others take the form of a set of terms fixed in advance by one party and not open to discussion by the other. These are called 'contracts  d’adhesion’ by  French lawyers.  Traders frequently contract,  not on  individually negotiated terms, but on those contained in a standard form of contract  settled by a trade association. And the terms of an employee’s contract of employment  may be determined by agreement between his trade union and his  employer,  or by a statutory scheme of employment. Such transactions are nevertheless contracts notwithstanding that freedom of contract is to a great extent lacking.

  Where freedom of contract is absent, the disadvantages to consumers or members of the public have, to some extent, been offset by administrative procedures for consultation, and

49

by  legislation.  Many statutes  introduce terms  into contracts which the  parties  are forbidden to exclude,  or  declare that certain provisions in a contract shall be void. And the courts have developed a number of devices for refusing to implement exemption clauses imposed by the economically stronger party on the weaker, although they have not recognized in themselves any general  power  (except by statute) to  declare broadly that an exemption clause will not be enforced unless it is reasonable. Again, more recently, certain of the judges appear to have recognized the possibility of relief from contractual obligations on the ground of 'inequality of bargaining power.'"  What the French call “contracts d’adhesion," the American call "adhesion contracts" or "contracts of adhesion." An "adhesion contract" is  defined  in  Black’s  Law Dictionary.  5th Edn.,  at page 38, as follows:

“Adhesion contract.—Standardized contract form offered to consumers of goods and services on essentially ‘take it or leave it’  basis  without  affording  consumer  realistic  opportunity to bargain and under such conditions that consumer cannot obtain  desired product  or  services  except  by  acquiescing in form contract. Distinctive feature of adhesion contract is that weaker party has no realistic choice as to its terms. Not every such contract is unconscionable.”

80.  The position under the American law is stated in Reinstatement of the Law — Second  as adopted and promulgated by the American Law Institute, Volume II which deals with the law of contracts, in Section 208 at page 107, as follows:

“§ 208. Unconscionable Contract or Term              If a contract or term thereof is unconscionable at the time the contract is made a court may refuse to enforce the contract, or may enforce the remainder of the contract without the unconscionable term, or may so  limit  the application of any unconscionable term as to avoid any unconscionable result.” In the Comments given under that section, it is stated at page  107:

“Like the obligation of good faith and fair dealing (§ 205), the policy against unconscionable contracts or terms applies to a wide variety of types of conduct.  The determination that a contract or term is or is not unconscionable  is made in the light of its setting, purpose and effect. Relevant factors include weaknesses in the contracting process like those involved in more specific rules as to contractual capacity, fraud and other invalidating causes; the policy also overlaps with rules which render particular bargains or terms unenforceable on grounds of  public policy.  Policing against  unconscionable  contracts or terms has sometimes been accomplished  by adverse construction of language, by manipulation of the rules of offer

50

and acceptance or by determinations that the clause is contrary to public  policy  or  to the dominant purpose of  the contract. Uniform Commercial Code § 2­302 Comment 1 .... A bargain is not unconscionable merely because the parties to it are unequal in bargaining position, nor even because the inequality results in an allocation of risks to the weaker party. But gross inequality of bargaining power, together with terms unreasonably favourable to the stronger party   ,  may  confirm indications that the transaction involved elements of deception or compulsion,  or  may show that the weaker  party  had no meaningful choice, no real alternative, or did not in fact assent or appear to assent to the unfair terms.”

(emphasis supplied) There  is  a statute  in the United States called the Universal Commercial Code, which applies to contracts relating to sales of goods. Though this statute is inapplicable to contracts not involving sales of goods, it has proved very influential in what is called in the United States, "non­sales" cases. It has many times been used either by analogy or because  it  was  felt to embody a generally accepted social attitude of fairness going beyond its statutory application to sales of goods. In the Reporter's Note to said Section 208, it is stated at p. 112:

"It is to be emphasized that a contract of adhesion is not unconscionable  per se, and that all unconscionable contracts are not contracts of adhesion. Nonetheless,  the more standardised the agreement and the less a party may bargain meaningfully, the more susceptible the contract or a term will be to a claim of unconscionability.”

(emphasis supplied) The position has been thus summed up by John R. Peden in ‘The  Law of  Unjust  Contracts’ published by  Butterworths  in 1982, at pages 28­29:

“... Unconscionability represents the end of a cycle commencing with the Aristotelian concept of justice and the Roman law laesio enormis, which in turn formed the basis for the medieval church’s concept of a just price and condemnation of usury. These philosophies permeated the exercise, during the seventeenth and eighteenth centuries, of the Chancery court’s discretionary powers under which it upset all kinds of unfair transactions. Subsequently the movement towards economic individualism in the nineteenth century hardened the exercise of these powers by emphasising the freedom of the parties to make their own contract. While the principle  of pacta sunt servanda  held dominance, the consensual theory still recognized exceptions where one party was overborne  by a fiduciary, or entered  a contract  under duress or as the result  of fraud.  However, these exceptions were limited and had to be strictly proved.  

It is suggested that the judicial and legislative trend during the last 30 years in both civil and common law jurisdictions has almost brought the wheel full circle. Both courts and

51

parliaments have provided greater protection for weaker parties from harsh contracts. In several jurisdictions this included a general power to grant relief from unconscionable contracts, thereby providing a launching point from which the courts have the opportunity to develop a modern doctrine of unconscionability. American decisions on Article 2.302 of the UCC have already gone some distance into this new arena....” The expression “laesio enormis”  used in the above  passage refers to “laesio ultra dimidium vel enormis” which in Roman law meant the  injury sustained by one of  the parties to  an onerous contract when he had been overreached by the other to the extent of more than one­half of the value of the subject­ matter, as for example, when a vendor had not received half the value of property sold,  or  the purchaser had paid more than double value. The maxim “pacta sunt servanda" referred to in the above passage, means "contracts are to be kept."

(emphasis supplied)

This Court held that due to inequality of bargaining power,

unreasonable terms, unreasonable favour to the stronger party may

involve an element of deception or compulsion, or may show that the

weaker party  had no meaningful  choice.  The Court in  Brojo  Nath

Ganguly  (supra) also observed that in the sphere of the law of

contract, the test of reasonableness or fairness has emerged. Even an

unreasonable clause cannot be enforced as that would be

unconscionable.

Here the reasonable construction in the matter is that the

pension is clearly admissible as per the resolution  passed  by the

Central Board of Directors of SBI, which is sought to be denied, it was

for SBI to amend Rules. Such an action would be unconscionable, and

courts cannot be said to be powerless in such a situation to enforce

the SBI VRS with an obligation to make payment of pension.

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(d). This Court considered the enforcement of unreasonable

contracts  and enforceability thereof in  Brojo  Nath Ganguly    (supra)

thus:

“83.  Yet another theory  which  has  made its emergence in recent years in the sphere of the law of contracts is the test of reasonableness  or fairness  of a clause in  a contract  where there is inequality of  bargaining  power.  Lord  Denning,  MR, appears to have been the propounder, and perhaps the originator  —at least in  England,  of this theory. In  Gillespie Brothers & Co. Ltd.  v.  Roy Bowles Transport Ltd.,  (1973) QB 400, where the question was whether an indemnity clause in a contract, on its true construction, relieved the indemnifier from liability arising to the indemnified from his own negligence, Lord Denning said (at pages 415­416):

“The time may come when this process of ‘construing’ the contract can be pursued no further. The words are too clear to permit of it.    Are the courts    then powerless? Are they    to permit the party to enforce his unreasonable clause, even when it is so unreasonable, or applied so unreasonably, as to be unconscionable   ? When it gets to this point, I would say, as I said many years ago:

‘there is the vigilance of the common law which, while allowing freedom of contract,  watches to see that it is  not abused’: John Lee & Son (Grantham) Ltd. v. Railway Executive, (1949) 2 All ER 581.

It will not allow a party to exempt himself from his liability at  common law when it would be quite unconscionable for him to do so.”

(emphasis supplied) In the above case, the Court of Appeal negatived the defense of the  indemnifier that the  indemnity clause did not  cover the negligence of the indemnified.  It was in  Lloyds Bank Ltd.  v. Bundy  (1974)  3  All  ER 757 that  Lord  Denning first clearly enunciated his theory of "inequality of bargaining power." He began his discussion on this part of the case by stating (at page 763) :

“There are cases in our books in which the courts will set aside a contract, or a transfer of property, when the parties have not met on equal terms, when the one is so strong in bargaining power  and  the  other  so  weak that,  as  a  matter of common fairness, it is not right that the strong should be allowed to push the weak to  the wall.  Hitherto those exceptional  cases have been treated each as a separate category in itself. But I think the time has come when we should seek to find a principle to

53

unite them. I put on one side contracts or transactions which are voidable for fraud or misrepresentation or mistake. All those  are  governed by  settled principles. I  go  only to those where there has been inequality of bargaining power, such as to merit the intervention of the court.”

(emphasis supplied) He then referred to various categories of cases and ultimately deduced therefrom a general principle in these words (at page 765):

    “Gathering all together, I would suggest that  through all these instances there runs a single thread. They rest on ‘inequality of bargaining power.' By virtue of it, the English law gives relief to one who, without independent advice, enters into a contract on terms which are very unfair or transfers property for a consideration which is grossly inadequate, when his bargaining power is grievously impaired by reason of his own needs or desires, or by his own ignorance or infirmity, coupled with undue influences or pressures brought to bear on him by or for the benefit of the other. When I use the word 'undue,' I do not mean to suggest that the principle depends on proof of any wrongdoing. The one who stipulates for an unfair advantage may be moved solely by his own self­interest, unconscious of the distress he is bringing to the other. I have also avoided any reference to the will of the one being ‘dominated’ or ‘overcome’ by the other. One who is in extreme need may knowingly consent  to  a most improvident  bargain, solely to relieve the straits in which he finds himself. Again, I do not mean to suggest that every transaction is saved by independent advice. But the absence of it may be fatal. With these explanations, I hope this principle will be found to reconcile the cases.”

(emphasis supplied)

(e). The Court clearly held that the contracts, which are the outcome

of misrepresentation, cannot be enforced, and inequality of bargaining

power merit the intervention of the court. In  A. Schroeder Music

Publishing Co. Ltd. v. Macaulay (formerly Instone) (1974) 1 WLR 1308,

Lord Diplock made the following observations at pp. 1315­16 thus:

"84. …. "My Lords, the contract under consideration in this appeal is one  whereby the respondent  accepted restrictions upon the way in which he would exploit his earning power as a songwriter for the next ten years. Because this can be

54

classified as a contract in restraint  of trade the restrictions that the respondent accepted fell within one of those limited categories of contractual promises in respect of which the courts still retain the power to relieve the promisor of his legal duty to fulfill them. In order to determine whether this case is one in  which that  power  ought to  be exercised,  what your Lordships  have in fact been  doing  has  been to assess the relative bargaining power of the publisher and the songwriter at the time the contract was made and to decide whether the publisher  had  used  his superior bargaining  power to exact from the songwriter  promises  that  were unfairly  onerous  to him. Your Lordships have not been concerned to inquire whether the public have in fact been deprived of the fruit of the song writer's talents by reason of the restrictions, nor to assess  the  likelihood that  they would be so deprived  in the future if the contract were permitted to run its full course.    It is, in my view, salutary to acknowledge that in refusing to enforce provisions of a contract whereby one party agrees for the  benefit of the other  party to exploit or to refrain from exploiting his own earning power, the public policy which the court is implementing is not some 19th century economic theory about the benefit  to the general public of  freedom of trade, but the protection of those whose bargaining power is weak against being forced by those whose bargaining power is stronger to enter into bargains that are unconscionable. Under the influence of Bentham and of laissez faire the courts in the 19th century abandoned the practice of applying the public policy against unconscionable bargains to contracts generally, as they had formerly done to any contract considered to be usurious; but the policy survived in its application to penalty clauses and to relief against forfeiture and also to the special category of contracts in restraint of trade. If one looks at the reasoning of 19th­century judges in cases about contracts in restraint of trade one finds lip service paid to current economic theories, but if one looks at what they said in the light of what they did, one finds that they struck down a bargain if  they thought it was unconscionable as between the parties to it and upheld it if they thought that it was not.    So I would hold that the question to be answered as respects a contract in restraint  of trade of the kind with which this appeal is concerned is: ‘Was the bargain fair?’  The test of fairness is, no doubt, whether the restrictions are both reasonably necessary for the protection of the legitimate interests of the promisee and commensurate with the benefits secured to the promisor under the contract. For the purpose of this test, all the provisions of the contract must be taken into consideration.”

(f). A term which exempts the stronger party from his ordinary

common  law liability should  not  be given effect except  when it is

55

reasonable, as observed in  Levison v.  Patent Steam Carpet Co. Ltd.,

(1949) 2 All ER 581 at 584 relied upon in Brojo Nath Ganguly  (supra)

thus:

“85.  The observations of Lord Denning, M.R., in Levison  v.  Patent Steam Carpet Co. Ltd.  are also useful and require to be quoted. These observations are as follows (at page 79) :

"In  such  circumstances  as  here the  Law Commission  in 1975 recommended that a term which exempts the stronger party  from his ordinary common law liability should not  be given effect except when it is reasonable: see The Law Commission and the Scottish Law Commission Report, Exemption Clauses, Second Report  (1975)  (August 5, 1975), Law Com. No. 69 (H.C. 605), pp. 62, 174; and there is a Bill now before Parliament, which gives effect to the test of reasonableness. This is a gratifying piece of law reform: but I do not think we need wait for that Bill to be passed into law. You never know what may happen to a Bill. Meanwhile, the common law has its own principles ready to hand. In Gillespie Bros. & Co. Ltd. v. Roy Bowles Transport Ltd. (1973) QB 400, I suggested that an exemption or limitation clause should not be given effect if it was unreasonable, or if it would be unreasonable to apply it in the circumstances of the case. I see no reason why this should not be applied today, at any rate in contracts in standard forms where there is inequality of bargaining power.”

(g). Courts have to construe the contracts according to the tenor. In

this regard, in Brojo Nath Ganguly   (supra), the Court considered the

question thus:

“87.  In  Photo  Production  Ltd.  v.  Securicor Transport Ltd.  (1980)  AC 827,  a  case  before the  Unfair  Contract Terms Act, 1977, was enacted, the House of Lords upheld an  exemption clause in  a contract on the  defendants' printed form containing standard conditions. The decision appears to proceed on the ground that the parties were businessmen and did not possess unequal bargaining power.  The House of  Lords did not, in that case,  reject the  test  of reasonableness or fairness  of  a clause in a contract where the parties are not equal in bargaining position. On the contrary, the speeches of Lord Wilberforce, Lord Diplock, and Lord Scarman would

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seem to show that the House of Lords in a fit case would accept that test.  Lord Wilberforce, in  his  speech,  after referring to the Unfair Contract Terms Act, 1977, said (at page 843) :

“This Act applies to consumer contracts and those based on standard terms and enables exception clauses to be applied with regard to what is just and reasonable. It is significant that Parliament  refrained  from  legislating over the whole field  of contract. After this Act, in commercial matters generally, when the  parties  are  not of  unequal  bargaining  power, and  when risks are normally borne by insurance, not only is the case for judicial intervention undemonstrated, but there is everything to be said, and this seems to have been Parliament’s intention, for leaving the parties free to apportion the risks as they think fit and for respecting their decisions.”

(emphasis supplied) Lord Diplock said (at page 850­51):

“Since the obligations implied by law in a commercial contract are those which, by judicial consensus over the years or by Parliament in passing a statute, have been regarded as obligations which a reasonable businessman would realise that he was accepting when he entered into a contract of a particular kind, the court’s view of the reasonableness of any departure from the implied obligations which would be involved in construing the express words of an exclusion clause in one sense that they are capable of bearing rather than another, is a relevant consideration in deciding what meaning the words were intended by the parties to bear.”

(emphasis supplied) Lord Scarman, while agreeing with Lord Wilberforce, described (at page 853)  the action out of which the appeal before the House had arisen as “a  commercial  dispute  between parties well able to look after themselves” and then added: “In such a situation  what the  parties  agreed (expressly  or impliedly) is what matters, and the duty of the courts is to construe their contract according to its tenor."

88. As seen above, apart from judicial decisions, the United States and the United Kingdom have statutorily recognised, at least in certain areas of the law of contracts, that there can be unreasonableness (or lack of fairness, if one prefers that phrase) in a contract or a clause in a contract where there is inequality of bargaining power between the parties although arising out of circumstances not within their control or as a result of situations not of their creation. Other legal systems also permit judicial review of a contractual transaction entered into in similar circumstances. For example, Section 138(2) of the German Civil  Code provides that a transaction is void "when a person" exploits "the distressed situation, inexperience, lack of judgmental ability, or grave weakness of

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will  of  another to  obtain  the grant or promise of  pecuniary advantages ... which are obviously disproportionate to the performance given in return". The position, according to the French law, is very much the same."  

(h). In  Brojo  Nath Ganguly  (supra), it  was pointed out what court

should do in such a matter thus:

“89. Should then our courts not advance with the times? Should they still continue to cling to outmoded concepts and outworn ideologies? Should we not adjust our thinking caps to match the fashion of the day? Should all jurisprudential development pass us by, leaving us floundering in the sloughs of 19th­century theories? Should the strong be permitted to push the weak to the wall? Should they be allowed to ride roughshod over the weak?  Should  the  courts  sit  back  and watch supinely while the strong trample underfoot the rights of the weak? We have a Constitution for our country. Our judges are bound by their oath to "uphold the Constitution and the laws." The Constitution was enacted to secure  to all the citizens of this  country social  and economic justice. Article 14 of the Constitution guarantees to all persons equality before the law and the equal protection of the laws. The principle deducible from the above discussions on this part of the case is in consonance  with right  and  reason, intended to secure social and economic justice and conforms to the mandate of the great equality clause in Article 14. This principle is that the courts  will not enforce  and  will,  when  called upon to do so, strike down an unfair and unreasonable contract, or an unfair and unreasonable clause in a contract, entered into between parties who are not equal in bargaining power. It is difficult to give an exhaustive list of all bargains of this type. No court can visualize the different situations which can arise in the affairs of men. One can only attempt to give some illustrations. For instance, the above principle will apply where the inequality of bargaining power is the result of the great disparity in the economic strength of the contracting parties. It will apply where the inequality is the result of circumstances, whether of the creation of the parties or not. It will apply to situations in which the weaker party is in a position in which he can obtain goods or services or means of livelihood only upon the terms imposed by the stronger party or go without them. It will also apply

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where a  man has  no choice, or rather  no  meaningful choice, but to give his assent to a contract or to sign on the dotted  line  in a  prescribed or  standard  form or to accept  a  set  of rules  as  part  of the  contract,  however unfair, unreasonable and unconscionable a clause in that  contract  or form or rules  may  be.  This  principle, however, will not apply where the bargaining power of the contracting parties is equal or almost equal. This principle may not apply where both parties are businessmen, and the contract is a commercial transaction. In today’s complex world of giant corporations with their vast infrastructural organizations and with the State through its instrumentalities and agencies entering  into almost every  branch of industry and commerce, there can be myriad situations which result in unfair and unreasonable bargains between parties possessing wholly disproportionate and unequal bargaining power. These cases can neither be enumerated nor  fully  illustrated. The court must  judge each case on its own facts and circumstances.”

(i). The Court in Brojo Nath Ganguly (supra) held that the contract,

which affected a large number of persons if they are unconscionable,

unfair, and unreasonable, the contract is voidable. The court would

not compel each person with whom the party with superior bargaining

power had contracted to go to court to adjudge the contract voidable

and would result in a multiplicity of litigation. It observed:  

“91. Is a contract of the type mentioned above to be adjudged voidable or void? If it was induced by undue influence, then under Section 19­A of the  Indian Contract  Act, it  would be voidable. It  is, however, rarely that contracts of the types to which the principle formulated by us above applies are induced by undue influence as defined by Section 16(1) of the Indian Contract Act, even though at times they are between parties one of whom holds a real or apparent authority over the other. In the vast majority of cases, however, such contracts are entered into by the weaker party under pressure of circumstances, generally economic, which results in inequality of  bargaining  power.  Such  contracts  will  not fall within the four corners of the definition of “undue influence” given in Section 16(1). Further, the majority of such contracts are in a standard or prescribed  form or  consist  of  a  set  of

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rules. They are not contracts between individuals containing terms meant for those individuals alone. Contracts in prescribed or standard forms or which embody a set of rules as  part of the contract are entered into  by the  party  with superior bargaining power with a large number of persons who have far less bargaining power or no bargaining power at all. Such contracts which affect a large number of persons or a group or groups of persons, if they are unconscionable, unfair, and unreasonable, are injurious to the public interest. To say that such a contract is only voidable would be to compel each person with whom the party with superior bargaining power had contracted to go to court to have the contract adjudged voidable.  This  would only result in  multiplicity  of litigation, which no court should encourage and would also not be in the public interest. Such a contract or such a clause in a contract ought, therefore, to be adjudged void. While the law of contracts in England is mostly judge­made, the law of contracts in India is enacted in a statute, namely, the Indian Contract Act, 1872. In order that such a contract should be void, it  must fall  under  one  of the  relevant  sections  of the Indian Contract Act. The only relevant provision in the Indian Contract Act,  which can apply is Section 23, when it states that "The consideration or object of an agreement  is  lawful, unless ... the court regards it as ... opposed to public policy."  

(j). The Court also considered the “public policy”. The same is not the

policy  of  a  particular  Government. It connotes some  matter  which

concerns the public  good and the public interest.  Action has to be

subservient to public policy. This Court in the context of Contract Act

and Public Policy made the following observations:

“92.  The Indian Contract Act does not define the expression "public policy" or "opposed to public policy." From the very nature of things, the expressions "public policy," "opposed to public policy," or "contrary to public policy" are incapable of precise definition. Public policy, however, is not the policy of a particular government. It connotes  some matter  which concerns  the public  good and the public  interest. The concept of what is for the public good or in the public  interest or what would be injurious  or  harmful to the  public good  or the  public interest has varied from time to time. As new concepts take the place of old, transactions which were once considered against public policy are now being upheld by the courts, and similarly, where there has been a well­

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recognized head of public policy, the courts have not shirked from extending it to new transactions and changed circumstances and have at times not even flinched from inventing a new head of public policy. There are two schools  of thought— "the  narrow view"  school and "the  broad view" school.  According to the former, courts cannot create new heads of public policy, whereas the latter countenances judicial law­making in this area. The adherents of "the narrow view" school would not invalidate a contract on the ground of public policy unless that particular ground had been well­established by authorities. Hardly ever has the voice of the timorous spoken more clearly and loudly than in these words of Lord Davey in  Janson  v.  Driefontein  Consolidated  Gold Mines Ltd.: "Public policy is always an unsafe and treacherous ground for  legal decision." That was in the year 1902. Seventy­eight years earlier, Burrough, J., in Richardson  v.  Mellish,  (1824­34)  All  ER 258,  described public policy as "a very unruly horse, and when once you get astride it you never know where it will carry you." The Master of the Rolls, Lord Denning, however, was not a man to shy away from unmanageable horses and in words which conjure up before our eyes the picture of the young Alexander the Great taming Bucephalus, he said in Enderby Town Football Club Ltd. v. Football Assn. Ltd. (1971) Ch 591: "With a good man in the saddle, the unruly horse can be kept  in control. It  can jump over obstacles." Had the timorous always held the field, not only the doctrine of public policy but even the Common Law or the principles of Equity would never have evolved. Sir William Holdsworth in his "History of English Law," Volume III, page 55, has said:

"In  fact,  a body of law  like  the common  law, which has grown up gradually with the growth of the nation, necessarily acquires some fixed principles, and if it is to maintain these principles, it must be able, on the ground of public policy or some other  like ground, to suppress practices which, under ever new disguises, seek to weaken or negative them." It is thus clear that the principles governing public policy must be and are capable, on proper occasion, of expansion or modification. Practices which were considered perfectly normal at one time have today become obnoxious and oppressive to public conscience. If there is no head of public policy which covers a case, then the court must in consonance with public conscience and in keeping with public good and public interest declare such practice to be opposed to public policy. Above all, in deciding any case which may not be covered by authority, our courts have before them the beacon light of the Preamble to the Constitution. Lacking precedent, the court can always

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be guided by that light and the principles underlying the Fundamental Rights and the Directive Principles enshrined in our Constitution.

93.  The normal rule of Common Law has been that a party who seeks to enforce an agreement which is opposed to public policy will be non­suited. The case of  A. Schroeder Music Publishing Co. Ltd. v.  Macaulay  (1974) 1 WLR 1308, however, establishes that where a contract is vitiated as being contrary to public policy, the party adversely affected by it can sue to have  it  declared void.  The case may be different,  where the purpose of the contract is illegal or immoral. In  Kedar Nath Motani  v.  Prahlad Rai, AIR 1960 SC 213, reversing the High Court and restoring the decree passed by the trial court declaring the appellants’ title to the lands in suit and directing the respondents who were the appellants’ benamidars to restore  possession, this  Court, after  discussing the  English and Indian law on the subject, said: (at page 873) :

"The correct position in law, in our opinion, is that what one has to see is whether the illegality goes so much to the root  of the matter that  the plaintiff  cannot bring his action without relying upon the illegal transaction into which he had entered. If the illegality be trivial or venial, as stated by Williston and the plaintiff is not required to rest his case upon that illegality, then public policy demands that the defendant should  not  be  allowed to take  advantage  of the  position.  A strict view, of course, must be taken of the plaintiff's conduct, and he should not be allowed to circumvent the illegality by resorting to some  subterfuge  or  by  misstating the facts. If, however, the matter is clear and the illegality is not required to be pleaded or proved as part of the cause of action, and the plaintiff recanted before the illegal purpose was achieved, then, unless it be of such a gross nature as to outrage the conscience of the court, the plea of the defendant should not prevail." The types of contracts to which the principle formulated by us above applies are not contracts which are tainted with illegality but are contracts which contain terms which are so unfair and unreasonable that they shock the conscience of the court. They are opposed to public policy and require to be adjudged void.”

51. This Court also considered the law of contract and its

interpretation in changing times in  Delhi Transport Corporation v.

D.T.C. Mazdoor Congress & Ors., (1991) Supp 1 SCC 600 thus:

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“279. In paragraph 4 of Chitty on Contracts (25th edn., vol. 1) it is stated  that "freedom of  contract is  a reasonable  social ideal only to the extent that equality of bargaining power between contracting parties can be assumed and no injury is done to the economic interest of the community at large."

280.  In Anson’s Law of Contract at pages 6 and 7 stated the scope of freedom of contract in the changing circumstances thus:     "Today the position is seen in a very different light. Freedom of contract is a reasonable social ideal only to the extent that equality of bargaining power between contracting parties can be assumed, and no injury is done to the economic interests of the community at large. In the more complicated social and industrial conditions of a collectivist society, it has ceased to have much idealistic attraction. It is now realised that economic equality often does not exist in any real sense and that individual interests have to be made to subserve those of the community hence there has been a fundamental change both in our social outlook and in the policy of the legislature towards  contract  and  the law today interferes  at  numerous points with the freedom of the parties to make what contract they like. The relation between employers and employed, for example, have been regulated by statutes designed to ensure that the employee’s condition of work are safe, that he is properly protected against redundancy, and that he knows his terms of service. The public has been protected against economic pressure by such measures as the Rent Acts,  the Supply  of  Goods (Implied  Terms)  Act, the  Consumer  Credit Act, and other similar enactments. These legislative provisions will override any contrary terms which the parties may make for themselves. Further, the legislature has intervened in the Restrictive Trade Practices Act, 1956, and the Fair Trading Act, 1973 to promote competition in industry and to safeguard the interests of consumers. This intervention is specially necessary today when most contracts entered by ordinary people are not the result of individual  negotiation. It is  not  possible for  a private  person to settle the terms  of  his agreement  with a British Railways Board or with a local electricity authority.” The 'standard form' contract is the rule. He must either accept the terms of this contract in toto or go without. Since, however, it is not feasible to deprive oneself of such necessary services, the individual is compelled to accept on those terms. In view of this fact, it is quite clear that freedom of contract is now largely an illusion."

52. (a).   It has been emphasised in  D.T.C.  (supra) that the period of

contract is to be reasonable and the employee has a right to know the

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conditions of work and he is properly protected against redundancy.

Approving decision in Central Inland Water Transport Corporation Ltd.

& Anr.  v.  Brojo Nath Ganguly & Anr. (1983) 3 SCC 156 Court held

thus:

“282.  In  Brojo Nath case  (1986) 3 SCC 156, Madon, J. elaborately considered the development of law relating to unfair or unreasonable terms of the contract or clauses thereof in extenso, and it is unnecessary for me to traverse the same grounds once over. The learned Judge  also considered the arbitrary, unfair, and unbridled power on the anvil of distributive justice  or justness  or fairness  of the  procedure envisaged therein. The relevant case law in that regard was dealt with in extenso in the light of the development of law in the Supreme Court of United States of America and the House of Lords in England and in the continental countries. To avoid needless burden on the judgment, I do not repeat the same reasoning. I entirely agree with the reasoning, and the conclusions reached therein on all these aspects."

(b).  This  Court in  D.T.C.  (supra)  with respect to the  alteration  of

Government contracts and the right of the State to impose

unconstitutional conditions, observed:

 “283.  The problem also could be broached from the angle whether the State can impose unconstitutional conditions as part  of the contract  or  statute  or  rule  etc. In (1959­60)  73 Harvard Law Review, in the Note under the caption ‘Unconstitutional Condition’ at pages 1595­96 it is postulated that the State is devoid of power to impose unconstitutional conditions in the contract that the power to withhold largesse has been asserted by the State in four areas i.e. (1) regulating the right to engage in certain activities; (2) administration of government welfare programme; (3) government employment; and (4) procurement of contracts. It was further adumbrated at pages 1602­03 thus:

"The sovereign's constitutional authority to choose those with whom it  will  contract for  goods and services is, in effect,  a power to  withhold the benefits  to be derived  from economic dealings with the government. As government activity in the economic sphere increases, the contracting power enables the government to control many hitherto unregulated activities of

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contracting parties through the imposition of conditions. Thus, regarding the government, as a private entrepreneur, threatens to impair constitutional rights. The government, unlike a private  individual,  is limited in its ability to contract by the Constitution. The federal contracting power is based upon the Constitution's authorisation of these acts 'necessary and proper' to the carrying out of the functions which it allocates to the national government. Unless the objectives sought by terms and conditions  in government contracts  requiring the surrender of rights are constitutionally authorised, the conditions must fall as ultra vires exercise of power.”

Again at page 1603, it is further emphasised thus:    “When conditions limit the economic benefits to be derived from dealings with  the government to those who  forego  the exercise of constitutional rights, the exclusion of those retaining their  rights  from participation  in the enjoyment of these benefits may be violative of the prohibition, implicit in the due process clause of Fifth Amendment and explicit in the equal protection clause of the Fourteenth Amendment against unreasonable  discrimination in the governmental bestow  of advantages.  Finally,  disabling those exercising certain rights from participating in the advantages to be derived from contractual relations with the government may be a form of penalty lacking in due process. To avoid invalidation for any of the above reasons, it must be shown that the conditions imposed are necessary to  secure the legitimate objectives of the contract, ensure its effective use, or protect society from the potential harm which may result from the contractual relationship between the government and the individual.” 284. Professor Guido Calabresi of Yale University Law School in his “Retroactivity, Paramount Power and Contractual Changes” (1961­62) 71 Yale Law Journal 1191, stated that the government can make contracts that are necessary and proper for carrying out any of the specific clauses of the Constitution or power to spend for general welfare. The Federal Government has no power, inherent or sovereign, other than those specifically or explicitly granted to it by the Constitution. At page 1197, it is further stated thus:

“The government acts according to due process standards for the due process clause is quite up to that task without the rule. Alterations of government contracts are not desirable in a free  country even when they  do  not  constitute  a ‘taking’  of property or impinge on questions of fundamental fairness of the type comprehended in due process. The government may make changes, but only if war or commerce require them and not on the broader and  more ephemeral grounds that the general welfare would be served by the change. Any other rule would allow the government to welch almost at will.” x x x

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286. In Brojo Nath case (supra, after elaborate consideration of the  doctrine of “reasonableness or fairness” of the terms and conditions of the contract vis­a­vis the relative bargaining power of the contracting parties this Court laid down that the principles deducible from the discussion made therein  is  in consonance with right or reason intended to secure socio­ economic justice and conform to mandate of the equality clause in Article 14. The principle laid was that courts will not enforce and will, when called upon to do so, strike down an unfair and unreasonable contract or an unfair and unreasonable clause in a contract, entered into between parties who are not equal in bargaining power …. It will apply to  situations  in  which  the  weaker  party is in  a  position in which he can obtain goods or services or means of livelihood only upon the terms imposed by the stronger party or go without them. It will also apply where a man has no choice, or rather no meaningful choice, but to give his assent to a contract or to sign on the dotted line in a prescribed or standard form or to accept a set of rules as part of the contract, however unfair, unreasonable and unconscionable a clause in that contract or form or rules may be. This principle, however,  will not apply  where the  bargaining  power  of the contracting  parties is equal or  almost equal or  where  both parties  are  businessmen,  and  the  contract is  a commercial transaction.

287. In today’s complex world of giant corporations with their vast infrastructural organisations the State through its instrumentalities and agencies has been entering into almost every branch of industry and commerce and field of service, there can  be  myriad situations  which result in  unfair and unreasonable bargains between parties possessing wholly disproportionate and unequal bargaining power. These cases can neither be enumerated nor fully illustrated. The court must judge each case on its own facts and circumstances.”

(emphasis supplied)

 The Court held that there can be myriad situations which result in

unfair and unreasonable bargains, which are the outcome of an

unequal bargaining power. Each case has to be seen on its own facts

and circumstances.

(c). In D.T.C. (supra), the Court also held that Article 14 sheds light

on public policy to curb arbitrariness thus:

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“294.  In Basheshar Nath v.  CIT, AIR 1959 SC 149, S.R. Das, C.J. held that Article 14 is founded on a sound public policy recognised and valued  in  all  States,  and  it  admonishes  the State  when it disregards the obligations imposed  upon the State. 295. In E.P. Royappa v. State of Tamil Nadu,   (1974) 4 SCC 3, Bhagwati, J. (as he then was) held that Article 14 is the genus while Article 16 is a specie. Article 16 gives effect to the doctrine of equality in all matters relating to public employment. The basic principle which, therefore, informs both Articles 14 and 16 is equality and inhibition against discrimination. "Equality is a dynamic concept with many aspects and dimensions, and  it  cannot be “cribbed, cabined and confined” within traditional and doctrinaire limits. From a positivistic point of view, equality is antithetical to arbitrariness.  In fact, equality and arbitrariness are sworn enemies; one belongs to the rule of law in a republic while the other, to the whim and caprice of an absolute monarch. Where an act is arbitrary, it is implicit in it that it is unequal both according to political logic and constitutional law and is therefore  violative  of  Article  14,  and  if it  affects  any matter relating to public employment, it is also violative of Article 16. Articles 14 and 16 strike at arbitrariness in State action and ensure fairness and equality of treatment. In Maneka Gandhi case (1978) 1 SCC 248, it was further held that the principle of reasonableness, which legally as well as philosophically, is an essential element of equality or non­arbitrariness pervades Article 14 like a brooding omnipresence. In  Ramana case (1979) 3  SCC 489, it  was  held that it is  merely  a judicial formula for  determining  whether the legislative  or  executive action in question is arbitrary and therefore constituting denial of equality. If  the classification is not reasonable and does not satisfy the two conditions, namely, rational relation and nexus, the impugned legislative or executive action would plainly be arbitrary, and the guarantees of equality under Article  14  would  be  breached.  Wherever, therefore, there is arbitrariness in State action, whether it be of legislature or of the executive or of an "authority" under Article 12, Article 14, "immediately springs into action and strikes down such State action."  In fact, the concept of reasonableness and non­ arbitrariness pervades the entire constitutional scheme and is a golden thread which runs through the whole of the fabric of the constitution.

302. Article 14 is the general principle, while Article 311(2) is a  special  provision applicable to  all  civil  services  under  the State. Article 311(2) embodies the principles of natural justice, but proviso to clause (2) of Article 311 excludes the operation of principles of natural justice engrafted in Article 311(2) as an exception in the given circumstances enumerated in three

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clauses  of the  proviso to  Article  311(2)  of the  Constitution. Article 14 read with Articles 16(1), and 311 are to be harmoniously interpreted that the proviso to Article 311(2) excludes the application of the principles of natural justice as an exception; and the applicability of Article 311(2) must, therefore, be circumscribed to the civil services and be construed accordingly.  In respect of all other employees covered by Article 12 of the Constitution, the dynamic role of Article 14 and other relevant articles like Article 21 must be allowed to have  full  play without any  inhibition,  unless the statutory rules themselves, consistent  with the mandate of Articles 14, 16, 19 and 21 provide, expressly such an exception.”

(emphasis supplied)

(d). Arbitrariness  in State action whether of the  legislature  or  the

executive or of an authority under Articles 12, 14 and 21 comes into

play to strike down such an action. The Court in  D.T.C.  (supra) held

thus:

“303.  Article 19(1)(g) empowers every citizen the right to avocation or profession etc. which includes right to be continued in employment under the State unless the tenure is validly terminated consistent with the scheme enshrined in the fundamental rights of the Constitution. Therefore, if any procedure is provided for deprivation of the right to employment or right to the continued employment till the age of superannuation as is a source to right to livelihood, such a procedure must  be  just, fair  and reasonable.  This  Court in Fertilizer Corporation Kamgar Union (Regd.), Sindri  v.  Union of India  (1981)  1 SCC 568, held that  Article  19(1)(g)  confers a broad and general right which is available to all persons to do works of  any particular kind and of  their  choice.  Therefore, whenever there is arbitrariness in State action — whether it be of the legislature or of the executive or of an authority under Article 12, Articles 14 and 21 spring into action and strikes down such an action. The concept of reasonableness and non­ arbitrariness pervades the entire constitutional spectrum and is a golden thread which runs through the whole fabric of the Constitution. Therefore, the provision of the statute, the regulation or the rule which empowers an employer to terminate the services of an employee whose service is of an indefinite period till he attains the age of superannuation, by serving a notice or pay in lieu thereof must be conformable to the mandates of Articles 14, 19(1)(g) and 21 of the Constitution. Otherwise, per se, it would be void. In Moti Ram Deka case, AIR 1964 SC 600, Gajendragadkar, J. (as he then

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was) after invalidating the Rules 149(3) and 148(3) under Article 311(2) which are in pari materia with Regulation 9(b) of the Regulations also considered their  validity  in the  light  of Article 14 and held thus: (SCR p. 731)

“Therefore, we are satisfied that the challenge to the validity of the impugned Rules on the ground that they contravene Article 14 must also succeed.” This was on the test of reasonable classification as the principle then was applied. Subba Rao, J. (as he then was) in a separate but concurring judgment, apart from invalidating the rule under Article 311(2) also held that the rule infringed Article 14 as well, though there is no elaborate discussion in that regard. But, Das Gupta, J. considered elaborately on this aspect and held: (SCR p. 770)        “Applying the principle laid down in the above case to the present Rule, I find on the scrutiny of the Rule that it does not lay down any principle  or policy for  guiding  the exercise  of discretion by the authority who will terminate the service in the matter of selection or classification. Arbitrary and uncontrolled power is left in the authority to select at its will any person against whom action will be taken. The rule thus enables the authority concerned to discriminate between two railway servants to both of whom Rule 148(3) equally applied by taking action in one case and not taking it in the other. In the  absence  of any  guiding  principle in the  exercise  of the discretion by the authority, the Rule has, therefore, to be struck down as contravening the requirements of Article 14 of the Constitution."   

308. In Ramana case  (1979) 3 SCC 489, it has been held  that: (SCC p. 504, para 10)

“It is indeed unthinkable that in a democracy governed by  the rule of law, the executive government or any of its officers  should possess arbitrary power over the interests of the  individual.”

The procedure adopted should match with what justice demands. History shows that it is always subtle and insidious encroachments made ostensibly for a good cause that imperceptibly but surely erode the foundations of liberty.”

(emphasis supplied)

(e). An employer cannot act in a manner that is in the negation of just,

fair, and reasonable procedure. The Court held:  

“329.  I  am, therefore, inclined to hold that the courts, though, have no power to amend the law by process of interpretation but do have power to mend it so as to be in

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conformity with the intendment of the legislature. Doctrine of reading down is one of the principles of interpretation of  statute  in that process.  But when the offending language used by the legislature is clear, precise, and unambiguous, violating the relevant provisions in the Constitution, resort cannot be had to the doctrine of reading down to blow life into the void law to save it from unconstitutionality or to confer jurisdiction on the legislature.  Similarly, it cannot be taken aid of to emasculate the precise, explicit, clear and unambiguous language to confer arbitrary, unbridled and uncanalised power on an employer which is a negation to just, fair and reasonable procedure envisaged under Articles 14 and 21 of the Constitution and to direct the authorities to record reasons, (   sic   ) unknown or unintended procedure, in the manner argued by the learned counsel for the appellants.”   (emphasis supplied)

(f). In D.T.C.  (supra) this Court also relied upon S.G. Jaisinghani v.

Union of India, AIR 1967 SC 1427 :

“331. x x x   “In this context it is important to emphasise that the absence of arbitrary power is the first essential of the rule of law upon which our whole constitutional system is based.  In a system governed by rule of law, discretion, when conferred upon executive authorities,  must  be  confined  within  defined limits.  The rule of law from this point of view means that decisions should be made by the application of known principles and rules and, in general, such decisions should be predictable, and the citizen should know where he is. If a decision  is  taken without any principle  or  without any rule, it is unpredictable, and such a decision is the antithesis of a decision taken in accordance with the rule of law. (See  Dicey:  Law of the  Constitution,  10th edn., Introduction  cx.) ‘Law has reached  its finest  moments,' stated Douglas, J. in United States v. Wunderlich 342 US 98, ‘when it has freed man from the unlimited discretion of some ruler …. Where discretion is absolute, man has always suffered.’ It is in this sense that the rule of law may be said to be the sworn enemy of caprice. Discretion, as Lord Mansfield stated it in classic terms in the case of John Wilkes (1770) 4 Burr 2528, ‘means sound discretion guided by law. It must be governed by rule, not by humour: it must not be arbitrary, vague and fanciful’”.

(emphasis supplied)

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(g). The Court emphasised that the decision has to be predictable

and it cannot be uncertain. The decision has to be taken by

application of known principles and rules. The exercise of power

cannot be whimsical or capricious. This Court in D.T.C. (supra) held:

“332. In an appropriate case where there is no sufficient evidence available to inflict by way of disciplinary measure,  penalty of  dismissal or removal from service and  to  meet  such  a  situation, it is  not  as if that the authority is lacking any power to make rules or regulations to give a notice of opportunity with the grounds or the material on records on which it proposed to take action, consider the objections and record reasons on the basis of which it had taken action and communicate the same. However, scanty the material may be, it must form foundation. This minimal procedure should be made part of the procedure lest the exercise of the  power is capable  of  abuse  for  good as  well  as for whimsical or capricious purposes for reasons best known to the  authority and not germane for the  purpose for which the power was conferred. The action based on recording reasoning without communication would always be viewed with suspicion. Therefore, I hold that conferment  of  power  with  wide  discretion  without  any guidelines, without any just, fair or reasonable procedure is constitutionally anathema to Articles 14, 16(1), 19(1)(g) and  21 of the  Constitution.  Doctrine of reading  down cannot be extended to such a situation.” (emphasis supplied)

53. On the basis of aforesaid principles, it is apparent that once the

Central Board of Directors accepted the  memorandum  for making

payment of pension, in case it was not accepting the proposal in the

memorandum, it ought to have said clearly that it was not ready to

accept the proposals of the Government and the IBA and rejects the

same. Once it approved the proposals referred to in the memorandum,

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which were  on  the basis  of IBA's letter  and Government of India's

decision  it  was bound to  implement  it in true  letter  and spirit.  By

accepting the same, binding obligation was created upon the SBI to

make  payment  of  pension  on completion of  15  years  of service. It

cannot invalidate its own decision by relying on fact it failed to amend

the rule, whereas other Banks did it later on with retrospective effect.

They cannot invalidate otherwise valid decision by virtue of exclusive

superior power to amend or not to amend the rule and act unfairly

and make the entire contract unreasonable based on

misrepresentation.  It was open to the Board of Directors to reject the

proposal. Once it accepted the proposal to make payment of pension

on completion of 15 years of service as proposed in the memorandum,

though the scheme is tried to be interpreted by the SBI that pension

was to be admissible as provided in the rule that refers to

proportionate pension as noted by this Court  in  O.P. Swarnakar &

Ors., (supra), and what was decided by Government of India/IBA, was

not taken away rather adopted by the Central Board of Directors. The

scheme of contractual nature has to be read in the context and in the

backdrop of facts and what has been resolved by the Board of

Directors. There is no ambiguity with respect to the admissibility of

pension when the memorandum and the scheme are read together. In

case of ambiguity and even if two interpretations are possible in the

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backdrop of facts of the case, one in favour of the employees has to be

adopted and so­called clarification dated 11.1.2000 even if considered

in the manner so as to deny the benefit of pension, has to be held to

be unenforceable, illegal and contrary to law.

54. It is apparent from the eligibility clause of the VRS scheme that

eligibility is provided for the employees having 15 years of pensionable

service and they will be entitled for benefits as provided in the scheme.

The eligibility clause, when read with clauses providing the benefit,

i.e., clauses 5 and 6 of the scheme, leaves no room for any doubt and

makes it clear that employees with 15 years of service were treated as

eligible to claim the benefit of the scheme floated by SBI. It was not

the provision in the VRS scheme that incumbents having completed

20  years of service  would  be entitled for  pensionary  benefits. The

scheme was carved out specially for attracting the employees by

providing pension and other benefits to eligible persons like ex gratia,

gratuity, pension and leave encashment. Deprivation of pension would

make them ineligible for the benefits and would run repugnant to the

eligibility clause.

55. The submission raised on behalf of the SBI that the draft scheme

nowhere stipulated that 15 years’ service would be the eligibility or

that on completion of 15 years' service, the incumbent would be

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eligible for pension, is factually incorrect. It is apparent from the

material circumstances, documents, and correspondence that the

decision was taken at all levels including the one by the Central Board

of Directors of SBI, that the benefit of pension was to be given to the

employees on completion of 15 years of service. In that perspective,

vagueness of scheme of SBI, if any, can be of no advantage as it is

clear beyond the pale of doubt that pension was heart and soul of the

scheme with ex gratia on completion of 15 years of service.  It is due to

the  reason  that the benefit  was  to  be accorded  to the incumbents

having completed 15 years of service, Regulation 28 as applicable to

other nationalised banks was proposed to be modified as reflected in

the letter  of IBA dated  11.12.2000 and Government  of India letter

dated 5.9.2000. Later on, the regulation was amended in 2002 after

the scheme had already been implemented in right earnest. There was

not even an iota of doubt that VRS was to give benefits to all eligible

employees having completed 15 years of service. It was apparent from

the  letter  dated 29.12.2000 of  SBI that the guidelines of IBA were

approved by the Central Board of Directors in its meeting dated

27.12.2000. Para 2 of the letter dated 29.12.2000 of SBI Deputy

Managing Director­cum­SDO is extracted hereunder:

"2. Accordingly, the Central Board of Directors, in its meeting held on 27.12.2000, has accorded approval for adopting and implementing the Voluntary Retirement Scheme for the employees of the Bank, namely "SBI

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Voluntary Retirement Scheme (SBIVRS).”  The Scheme "SBIVRS" has been drawn up, keeping in view the guidelines issued by IBA. A copy of the Scheme is placed at Annexure ‘B’.”    

(emphasis supplied)

56. As noted in  O.P. Swarnakar & Ors., (supra), the case of bank

itself was that it was a contractual scheme. The expression "pension"

as per rules was only for the purpose of working out the proportionate

pension. It was clearly decided to open the scheme to employees who

have put in 15 years of service. It was not provided in the scheme that

the incumbent  was required to render  a  pensionable  service  of  20

years as per the rules in order to acquire eligibility for the pension.

The submission made on behalf of SBI is too tenuous to be accepted.

It was observed in para 89 of  O.P. Swarnakar & Ors., (supra) quoted

above that the employee must have proceeded on the basis of 15 years

of service then they were entitled to pensionary benefits.

The Court further observed in  O.P. Swarnakar & Ors., (supra)

that the scheme is enforceable thus:

“92.  However, the case of the State Bank of India stands slightly on a different footing. Firstly, the State Bank of India had not amended the Scheme. It, as noticed hereinbefore, even permitted  withdrawal of the  applications  after (sic  by)  15th February. The Scheme floated by the State Bank of India contained a clause (clause 7) laying down the mode and manner in which the application for voluntary retirement shall be considered. The relevant clause, as referred to hereinbefore, creates an enforceable right. In the event the State Bank failed to adhere to  its  preferred policy, the same could have been specifically enforced by a court of law. The same would, therefore, amount to some consideration."

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57. While construing a contract, the language and surrounding

circumstances of the overall scheme, memorandum and letters are to

be read conjointly to find out  whether any departure  made by  the

Board of  Directors in its  Resolution dated  27.12.2000  is  of  pivotal

significance. In this case, the decision was taken by it of approval of

the IBA scheme as proposed. Its binding effect cannot be changed on

the basis what parties choose to say afterward, nor they can be

permitted to  wriggle  out.  The  contract is required to  be  read as  a

whole. It is apparent on a bare reading that optees will be eligible for

proportionate pension under the Pension Regulations of the bank and

therefore, the bank bears the risk of lack of clarity, if any.

58. In Bank of India & Anr. v. K. Mohandas & Ors., (2009) 5 SCC 313

wherein several other banks were also parties, the question arose as to

the nature of VRS, 2000. The Court noted the objectives, the

amendment made in Regulation 28 in 2002, providing for 15 years of

service. The scheme was open in November­December, 2000 and in

Union Bank of India in January, 2001. The employees claimed that

those who completed 20 years of service, were entitled to the benefit of

provisions contained in Regulation 29(5) of Employees’ Pension

Regulations, 1995 applicable to the said banks. They claimed having

completed the qualifying service of 20 years under Regulation 29, were

entitled for 5 years’ increase in the service tenure subject to the

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maximum of 33 years which was not given to them on the ground that

the benefit of VRS was available to incumbents having completed 15

years of service as provided in amended Regulation 28, and Regulation

29 was not applicable. This Court held that the benefit of VRS was

available to the employees having completed 15 years of service, but

the additional benefit which was available on completion of 20 years of

service was also admissible as provided in Regulation 29(5).

59. While considering the aforesaid similar scheme of VRS, this

Court observed with respect to the construction of the contract on the

basis of the import of the words. The intention of the parties must be

ascertained from the language they have used and considered in the

light of surrounding circumstances, and the meaning cannot be

changed by a course of conduct adopted by the parties in acting under

it. This Court in K. Mohandas (supra) held thus:

“28.  The true construction of a contract must depend upon the import of the words used and not upon what the parties choose to say afterwards. Nor does subsequent conduct of the parties in the performance of the contract affect the true effect of the clear and unambiguous words used in the contract. The intention of the parties must be ascertained from the language they  have  used, considered in the light of the  surrounding circumstances and the object of the contract. The nature and purpose of the contract is an important guide in ascertaining the intention of the parties.

29.  In  Ottoman Bank of  Nicosia  v.  Ohanes  Chakarian,  Lord Wright made these weighty observations: (AIR p. 29) “…  that if the  contract is clear  and  unambiguous, its true effect cannot be changed  merely by the course of conduct adopted by the parties in acting under it.”

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30. In Ganga Saran v. Firm Ram Charan Ram Gopal AIR 1952 SC 9, a four­Judge Bench of this Court stated: (AIR p. 11, para 6) “6. … Since the true construction of an agreement must depend upon the import of the words used and not upon what the parties choose to say afterwards, it is unnecessary to refer to what the parties have said about it.”

31.  It is also a well­recognised principle of  construction of a contract that it must be read as a whole in order to ascertain the true meaning of its several clauses and the words of each clause should be interpreted so as to bring them into harmony with the other provisions if that interpretation does no violence to the meaning of which they are naturally susceptible. (North Eastern Railway Co. v. Lord Hastings, 1900 AC 260)”

60. With respect to lack of clarity in the scheme, this Court in  K.

Mohandas (supra) relied on maxim verba chartarum fortius accipiuntur

contra proferentem  to hold that banks who were responsible for

formulation of the terms in the contractual Scheme, bear the risk of

lack of clarity. Thus, the benefit has to be given to the employees by

making interpretation against the banks. The Court held :

“32. The fundamental position is that it is the banks who were responsible for formulation  of the terms in the contractual Scheme  that the  optees  of voluntary retirement  under that Scheme will be eligible to pension under the Pension Regulations, 1995, and, therefore, they bear the risk of lack of clarity, if any. It is a well­known principle of construction of a contract that if the terms applied by one party are unclear, an interpretation against that party is preferred (   verba chartarum fortius accipiuntur contra proferentem   ).

33. What was, in respect of pension, the intention of the banks at the time of bringing out VRS 2000? Was it not made expressly clear therein that the employees seeking voluntary retirement will be eligible for pension as per the Pension Regulations? If the intention was not to give pension as provided in Regulation 29 and particularly sub­regulation (5) thereof, they could have said so in the Scheme itself. After all, much thought had gone into the formulation of VRS 2000, and

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it came to be framed after great deliberations. The only provision  that  could  have  been in  mind while  providing for pension as per the Pension Regulations was Regulation 29. Obviously, the employees, too, had the benefit of Regulation 29(5)  in mind when they offered for voluntary retirement as admittedly Regulation 28, as was existing at that time, was not applicable at all. None of Regulations 30 to 34 was attracted."  

        (emphasis supplied)

61. In K. Mohandas (supra) the Court considered the argument that

Regulation 28 would be applicable only for providing 15 years of

eligibility as provided by way of amendment of Regulation of 1995, and

held that as the banks are “State” within the meaning of Article 12, it

would  be an  arbitrary action on their part to deny the  benefit of

section 29(5),  and there  has  to  be harmonious construction  to the

scheme and Pension Regulations, thus:

“35.  We are afraid; it would be unreasonable if amended Regulation 28 is made applicable, which had not seen the light of the day and which was not the intention of the banks when the Scheme was framed. The banks in the present batch of appeals  are  public  sector  banks  and are "State"  within the meaning of Article 12 of the Constitution and their action even in contractual matters has to be reasonable, lest, as observed in O.P. Swarnakar (2003) 2 SCC 721, it must attract the wrath of Article 14 of the Constitution. 36.  Any  interpretation  of the terms of  VRS 2000,  although contractual in nature, must meet the test of fairness. It has to be construed in a manner that avoids arbitrariness and unreasonableness on the part of the public sector banks who brought out VRS 2000 with an objective of  rightsizing their manpower. The banks decided to shed surplus manpower. By formulation of the special scheme (VRS 2000), the banks intended to achieve their objective of rationalising their force as they were overstaffed.  The special Scheme was, thus, oriented to lure the employees to go in for voluntary retirement. In this background, the consideration that was to pass between the parties assumes significance and a harmonious construction to the Scheme, and the Pension Regulations, therefore, has to be given.

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37. The amendment to Regulation 28 can, at best, be said to have been intended to cover the employees with 15 years of service or more but less than 20 years of service. This intention is reflected from the communication dated 5­9­2000 sent by the Government of India, Ministry of Finance, Department of Economic Affairs (Banking Division) to the Personnel Advisor, Indian Banks’ Association.”

(emphasis supplied)

It opined that the amendment to Regulation 28 of 1995

Regulation intended to cover 15 years of service, i.e., employees with

15 years of  service who have not completed 20 years  of  service.  A

similar action to amend the Rule was required to be taken by the SBI,

but it failed to take it after having floated a similar scheme. It kept it

uncertain what would be the position of the rule as on the appointed

date, i.e., 31.3.2001. Be that as it may. But it was crystal clear that

the incumbent with 15 years of service was eligible for the benefit as

provided in the scheme itself.  The benefit clause has to be read with

the eligibility criteria. Once VRS was formulated and adopted by the

SBI in toto, it constituted a complete contractual package in itself.

62. As urged on behalf of SBI if section 23 of the Contract Act is

applied, then how it is helpful to the bank, is not understandable.  In

case it is held that the very scheme was opposed to the law/rules, the

entire scheme would fall down. Once it adopted the scheme, invited

applications and the employees acted upon it and retired on the basis

of the scheme, they cannot be left in lurch. In case its submission is

accepted, the Scheme becomes violative of Section 23 of Contact Act,

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the bank would have to suffer the consequences of striking down of

the very scheme and would be required to reinstate the employees and

to pay them the salary and other benefits.  However, SBI accepted the

scheme, it was incumbent upon it to bring the rules in consonance

with the similar VRS scheme as was done by other banks. The SBI

accepted the scheme on 27.12.2000 without any ifs and buts.  Thus,

the anomaly was the outcome of the bank's inaction to propose and

make amendment of rules. In such a scenario, the action of SBI is

violative of Articles 14, 16 and 21 of the Constitution.   The situation

created by itself is not going to benefit the bank to lend support to

arbitrary action. The bank was bound to extend the benefits by

amending the rules, if  necessary, to salvage the situation for  itself.

Breach  of law  has  been  committed  by the  SBI itself, its action is

arbitrary  and  it cannot  be  permitted to take  advantage  of its own

wrong.

63. The pension cannot be dealt with arbitrarily and cannot be

denied in an unfair manner.  The concept of pension was considered

in D.S. Nakara & Ors. v. Union of India, (1983) 1 SCC 305. The right to

a pension can be enforced through the court, it observed :

“20.  The antequated notion of pension being a bounty, a gratuitous payment depending upon the sweet will or grace of the employer not claimable as a right and, therefore, no right to  pension  can  be enforced through Court  has  been  swept under the carpet by the decision of the Constitution Bench in

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Deokinandan Prasad  v.  State of Bihar  (1971) 2 SCC 330 wherein this Court authoritatively ruled that pension is a right and the payment of it does not depend upon the discretion of the Government but is governed by the rules and a government servant coming within those rules  is entitled to claim pension. It was further held that the grant of pension does not depend upon anyone’s discretion. It  is only for the purpose of  quantifying  the amount having regard to  service and other allied matters that it may be necessary for the authority to pass an order to that effect but the right to receive pension flows to the officer not because of any such order but by virtue of the rules.  This  view was reaffirmed  in  State  of Punjab v. Iqbal Singh, (1976) 2 SCC 1. 22.  In the course of transformation of society from feudal to welfare and as socialistic thinking acquired respectability. State obligation to provide security in old age, an escape from undeserved want was recognised and as a first step pension was treated not only as a reward for past service but with a view to helping the employee to avoid destitution in old age. The quid pro quo was that when the employee was physically and mentally alert, he rendered unto master the best, expecting him to look after him in the fall of life. A retirement system, therefore, exists  solely for the  purpose  of  providing benefits. In most of the plans of retirement benefits, everyone who qualifies for normal retirement receives the same amount (see  Retirement Systems for Public Employees by Bleakney, p. 33).”

This Court observed that the principal aim of the socialist State

as  envisaged in the  Preamble is to eliminate inequality.  The  basic

framework of socialism is to provide security in the fall of life to the

working people and especially provides security from the cradle to the

grave when employees have rendered service in heydays of life, they

cannot be destituted in old age, by taking action in an arbitrary

manner and for omission to complete obligation assured one.  Though

there cannot be estoppel against the law but when a bank had the

power to amend it, it cannot take shelter of its own inaction and SBI

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ought to have followed the pursuit of other banks and was required to

act in a similar fair manner having accepted the scheme.

64. Resultantly, we are of the opinion that the employees who

completed 15 years of service or more as on cut­off date were entitled

to proportionate pension under SBI VRS to be computed as per SBI

Pension Fund Rules. Let the benefits be extended to all such similar

employees retired  under  VRS on completion of  15  years  of service

without requiring them to rush to the court. However, considering the

facts and circumstances, it would not be appropriate to burden the

bank with interest.   Let order be complied with and arrears be paid

within three months, failing which amount to carry interest at the rate

of 6 per cent per annum from the date of this order.  The appeals are

accordingly disposed of.  No costs.

…………………………J. (Arun Mishra)

………………….……..J. (M.R. Shah)

New Delhi; …….…………………..J. March 2, 2020.    (B.R. Gavai)