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CASE NO.:

Appeal (civil) 2916 of 2007

PETITIONER:

CHAIRMAN & M.D., K.S.R.T.C.

RESPONDENT:

K.O. VARGHESE & ORS.

DATE OF JUDGMENT: 09/07/2007

BENCH:

H.K. SEMA & P.K. BALASUBRAMANYAN

JUDGMENT:

J U D G M E N T

CIVIL APPEAL NO(s). 2916 OF 2007

[@ Special Leave Petition (Civil) No. 19383-19390 of 2004]

P.K. BALASUBRAMANYAN, J.

Leave granted.

Heard learned counsel on all sides.

1. This appeal by the Kerala State Road Transport

Corporation, hereinafter referred to as KSRTC, challenges the

decision of the High Court of Kerala in a series of Writ Appeals

rendered on 24.3.2004 pursuant to an order of remand made

by this Court in Civil Appeal Nos. 6651-6654 of 2000 and the

connected cases. The decision remanding, was rendered on

17.4.2003 and the same is reported as Kerala State Road

Transport Corporation Vs. K.O. Varghese & Ors. [(2003) 12

SCC 293].

2. KSRTC is a Corporation established under the Road

Transport Corporation Act, 1950, hereinafter called, "the Act".

The Corporation was formed on 15.3.1965. On 22.3.1965, the

employees of the Transport Department of the Government of

Kerala were absorbed in KSRTC. KSRTC became functional

with effect from 1.4.1965. In the general instructions issued

on 22.3.1965 in exercise of power under Section 34(1) of the

Act, the Government while transferring the existing transport

undertakings and their assets and liabilities to KSRTC, also

made applicable to it, all orders and notifications thereunto

issued by the Government, which were not inconsistent with

the provisions of the Act, until their alteration or repeal. Part

II thereof dealt with the staff. It would be profitable to set

down paragraphs 10 to 12 of that Order at this stage:

"10. All persons employed by

Government in the State Transport

Department and appointed substantively to a

permanent post in that Department who would

have continued in the service of Government

but for the transfer of the management of the

State Undertaking to the Corporation, shall be

treated as permanently transferred to the

Corporation for appointment under Section

14(2) of the Road Transport Corporation Act,

1950 (Central Act, LXIV of 1950) and on such

transfer they will be deemed to have vacated

office under Government and to have been

offered and to have accepted employment

under the Corporation.

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Provided that the provision shall not apply to

persons, if any, appointed in the State

Transport Department to the posts of Director

of Transport and Chief Mechanical Engineer,

and such persons shall continue as

supernumeraries under Government service

until further orders.

11. The Corporation shall guarantee

continued employment to all such personnel

as are transferred for service under the

Corporation, under the same terms and

conditions of service as were applicable to

them under Government immediately before

such transfer.

12. The Corporation shall pay to the

employees so transferred their pension,

gratuity and provident fund according to the

relevant rules, notifications and orders of

Government in force and applicable to them

immediately before such transfer as and when

such benefits accrue."

In paragraph 15, it was provided that the past services of the

transferred employees with the Government, would count for

the purposes of promotion, leave, pension and such other

benefits. Thus the transferred employees who retired from

KSRTC were eligible for pension in terms of their conditions of

absorption. But in terms of clause 10 they ceased to be

employees of the Government.

3. On 27.3.1984, the Government of Kerala authorized

KSRTC to pay pension to its employees as per Kerala Service

Rules, hereinafter referred to as "KSR". The said

communication is on the following terms.

"In continuation of the letter cited

above, I am directed to convey the Government

decision authorizing the KSRTC to pay pension

to its employees as per KSR and introduce GPF

instead of contributory provident fund with

effect from 1.4.1984.

The KSRTC will obtain written

undertaking from each employee to refund the

management share of contribution to GPF as

well as family pension fund hitherto made in

consultation with the Regional Provident Fund

Commissioner."

On 5.5.1984, an order was issued by the Managing Director of

KSRTC that all Corporation employees who retire after

1.4.1984 would be paid pension subject to the employees

fulfilling the stipulations therein.

4. Then came the recommendations of the IV Pay

Commission and its acceptance by the State Government. But

due to its precarious financial position, the Board of Directors

of KSRTC took a decision on 19.3.1986 to implement only

some of the recommendations with effect from 1.11.1986 and

an order in that regard was also issued. On 2.2.1990, a

Memorandum of Settlement was drawn up, based on the

understanding arrived at between the management and the

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recognized Labour Unions. As per that memorandum, the

benefits of the settlement were postponed till September 1991.

The benefits were thereafter made available.

5. This was followed by the report of the Fifth Pay

Commission and the acceptance by the Government of its

recommendations. The benefits relating to pension and allied

matters were made applicable to persons who retired from

service prior to 1988 and the wage revision was given effect to

from 2.2.1990. The financial condition of KSRTC was

precarious. On 17.5.1991, KSRTC wrote to the Government

seeking its approval for implementation of the

recommendations of the Fifth Pay Commission in the

Corporation. This was followed by letters detailing the

financial crisis faced by the Corporation. Ultimately, by letter

dated 24.9.1992, the State Government advised KSRTC that it

may defer for better times, the implementation. We quote the

letter hereunder:

"Sir,

Sub: KSRTC \026 Recommendations of

the 5th Kerala Pay Commission

relating to pension and allied

matters \026 reg.

Ref.: Your Lr. No. PLA 10/32886/90

dated 17.5.1991.

Referring to the above, I am directed to

inform you that since the financial position of

KSRTC is not sound this may be deferred for

better times."

Thus, the reliefs regarding revision of pensionary benefits as

recommended was not immediately implemented.

6. Some of the employees of KSRTC filed a writ petition

in the High Court challenging this non-implementation. The

High Court allowed the writ petition, O.P. 7176 of 1993 and

directed KSRTC to pay the arrears of the enhanced Dearness

Allowance from 1.7.1991 till 31.10.1991. KSRTC appealed to

the Division Bench in W.A. 890 of 1993. An interim order of

stay of the directions issued by the single judge was also

obtained. Meanwhile, in another writ petition, O.P. No. 13233

of 1992, another single judge directed the Government to take

a policy decision on whether, the benefits of the Fifth Pay

Commission should be extended to the pensioners of KSRTC.

7. Pursuant to the above direction and in compliance

with it, the State Government by letter dated 16.5.1995

informed KSRTC as follows:

"The matter has been examined by the

Government in detail and as the financial

position of KSRTC is not sound, it has been

decided that grant of benefits of the Fifth Pay

Commission to the pensioners of KSRTC may

be deferred for better times."

Thus, the policy decision taken by the State Government was

to direct KSRTC not to give the benefit of the Fifth Pay

Commission until better times. Meanwhile, the writ appeals

filed by KSRTC were dismissed by the Division Bench which

also allowed appeals filed by some of the writ petitioners.

KSRTC challenged those decisions before this Court by way of

Special Leave to Appeal. This Court entertained the appeals

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and by the judgment dated 17.4.2003, set aside the judgment

of the High Court and directed the High Court to reexamine

the question. This Court noticed that the High Court has not

considered what exactly was the effect of Part III of KSR being

made applicable to KSRTC and whether the letter dated

16.5.1995 was in fact a direction in terms of Section 34 of the

Act. This Court therefore directed the High Court to

reconsider those aspects and also consider the question

whether KSRTC as a statutory Corporation, did not have the

power to fix a date different from the date fixed for the

government employees for implementation of the

recommendations of the Fifth Pay Commission regarding

pensionary benefits and wage revision.

8. Back in the High Court, the Division Bench held

that the adoption of Part III of KSR by KSRTC, was an exercise

of legislation by reference and if and when the government

adopted the recommendation of the Fifth Pay Commission in

respect of its employees governed by Part III of KSR, KSRTC

was also obliged to implement the recommendation in respect

of its employees with effect from the same date. The Division

Bench further held that the letter of the Government dated

24.9.1992, was not a direction in terms of Section 34 of the

Act. The High Court also held that KSRTC did not have the

competence to fix a different cut-off date in respect of its

employees. It ultimately held that in the absence of any

specific regulation being framed by KSRTC and in the absence

of a direction under Section 34 of the Act by the State

Government to KSRTC to fix a different cut-off date, KSRTC

was bound to implement the recommendation of the Fifth Pay

Commission and to grant revised pensionary benefits and

dearness relief to all its employees whether originally

transferred from the government department or subsequently

employed by KSRTC itself, on a par with the government

employees. Thus, the appeals filed by the employees were

allowed and those filed by KSRTC were dismissed. It is this

decision rendered after remand, that is challenged again in

these appeals.

9. Learned counsel for the KSRTC, the appellant,

submitted that the High Court was in error in holding that

KSRTC, an autonomous corporation, was not entitled to fix a

date of its own for implementation of revised pensionary

benefits as per the recommendation of the Fifth Pay

Commission. He further submitted that the financial position

of KSRTC was precarious and in the face of that fact, the High

Court was in error in compelling KSRTC to implement the

recommendation of the Fifth Pay Commission regarding

pension and dearness allowance and a direction that would

lead to the winding up of the corporation itself, should not

have been issued in such a casual manner. Learned counsel

further submitted that the High Court had earlier, on

6.3.1995, directed the government to take a policy decision

which would obviously be only one in terms of Section 34 of

the Act and pursuant to that direction, the government had

taken a decision and conveyed it to the corporation by its

communication, letter No.11969/L3/95/PW&T dated

16.5.1995 and this communication, in the context, can only

be understood as a direction under Section 34 of the Act. The

High Court has not properly adverted to or considered the

effect of this communication. Learned counsel submitted that

Part III of KSR had only been adopted for KSRTC or by KSRTC

and it was neither a case of legislation by incorporation nor a

case of legislation by reference. For either of that to occur,

there must be two legislations or enactments, one of which

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must adopt the other. Thus, the High Court was wrong in

holding that the adoption of Part III of KSR in KSRTC was a

legislation by reference. Learned counsel submitted that there

was no provision in Part III fixing any date for revising pension

or for the grant of it.

10. In answer, learned counsel for the employees of

KSRTC submitted that as per the earlier direction of the State

Government, Part III of KSR had been made applicable to

employees of KSRTC and once Part III of KSR was made

applicable, the employees were entitled to pensionary benefits

as provided therein and that would include the right to

enhanced pension as and when they are enhanced. Right to

pension included the right to it from a given date. Here, the

date was the one adopted by the State Government. He

submitted that the direction issued by the Government dated

27.3.1984 authorizing KSRTC to pay pension clearly justified

this position. He also submitted that the High Court was

correct in holding that the communication dated 24.9.1992,

was not a direction under Section 34 of the Act. He pointed

out that no formalities were complied with and the direction

was not even notified. It was merely a reply to a letter sent by

KSRTC. The communication dated 27.3.1984 would be a

direction in terms of Section 34 of the Act and KSRTC was

bound to pay any enhancement as and when it is given by the

State Government to its employees. Counsel representing

those employees who were originally employees of the

Government added that those employees could not be

prejudiced by not giving them the same benefits as employees

of the Government in view of the order of their absorption in

KSRTC dated 22.3.1965.

11. Before going into the other questions, we think it

proper to consider whether in the circumstances of the case

there has been a direction by the State Government in terms

of Section 34 of the Act. Section 34 reads:

"34. Direction by the State Government. \026

(1) The State Government may, after

consultation with a Corporation established by

such Government, give to the Corporation

general instructions to be followed by the

Corporation, and such instructions may

include directions relating to the recruitment,

conditions of service and training of its

employees, wages to be paid to the employees,

reserves to be maintained by it and disposal of

its profits or stocks.

(2) In the exercise of its powers and

performance of its duties under this Act, the

Corporation shall not depart from any general

instructions issued under sub-section (1)

except with the previous permission of the

State Government."

This Court has earlier indicated that a direction issued under

Section 34 by the Government is a general direction and the

Government ought not to issue a specific direction with regard

to any particular case. (See Mysore State Road Transport

Corporation Vs. Babajan Conductor & another [(1977) 2

S.C.R. 925]. This Court has also held that until regulations

are made with the previous sanction of the State Government,

the directions given under Section 34 in respect of conditions

of service have got the force of law (See General Manager,

Mysore State Road Transport Corporation Vs. Devraj Urs .

& another [(1976) 2 S.C.C. 862]. It is in this context that the

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communication issued by the State Government to KSRTC in

respect of implementation of the recommendations of the Fifth

Pay Commission regarding pensionary benefits has to be

considered.

12. It is clear from the communication dated 24.9.1992

that KSRTC had written a letter to the Government dated

17.5.1991 regarding the payment of additional benefits based

on the recommendations of the Fifth Pay Commission. The

Government by that letter dated 24.9.1992, informed KSRTC

that since the financial position of KSRTC was not sound, the

proposal may be deferred for better times. It was in that

context that writ petitions were filed in the High Court by

certain employees of the Corporation. The High Court by

judgment dated 6.3.1995 noticed the stand of KSRTC in its

counter affidavit that it was not in a position financially to

meet the requirements, on accepting the recommendations of

the Fifth Pay Commission and KSRTC was facing great

financial difficulty. The Court also noticed the submission of

learned counsel for KSRTC that since the matter related to a

policy decision, the advice of the State Government had to be

given due weightage and in the face of the earlier letter, the

matter had been referred to the Government and KSRTC will

take a decision as and when the Government approved the

policy of giving the benefits of Fifth Pay Commission to the

pensioners of KSRTC. The court noticed that the pensioners

were senior citizens and therefore an expeditious decision by

the State Government was warranted. The court directed:

"It is for the State Government to take a

decision in the mater having due regard to all

the relevant circumstances including the

financial stability of the Corporation.

Therefore, I direct the Government to take a

decision in the matter within a reasonable time

and the Corporation shall take further action

pursuant to the decision to be taken by the

Government. A decision in this regard shall be

taken within a period of six months of the date

of receipt of a copy of this judgment."

13. Pursuant to this direction of the High Court

obtained by employees or pensioners of KSRTC, the

Government considered the matter and with particular

reference to the order in the writ petitions, informed KSRTC by

letter dated 16.5.1995 that having examined the matter in

detail and since the financial position of KSRTC was not

sound, it was decided that grant of benefits of the Fifth Pay

Commission to the pensioners of KSRTC may be deferred for

better times.

14. As we understand this communication in the

context in which it was issued, we are of the view that this

amounts to a direction in terms of Section 34 of the Act. It

must be remembered that this communication was issued

when the Government was directed by the High Court to take

a policy decision on the question of implementing the

recommendations of the Fifth Pay Commission in respect of

the employees of KSRTC. Such a policy decision in the

absence of a regulation, could obviously be only in terms of

Section 34 of the Act. Therefore, when in compliance with the

direction of the High Court, the Government took a policy

decision and communicated the same to KSRTC to defer the

implementation of the recommendations of the Fifth Pay

Commission, it could be understood only as a direction in

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terms of Section 34 of the Act. The context in which the

communication dated 16.5.1995 was issued, according to us,

clearly shows that it was intended to be a direction in terms of

Section 34 of the Act and the argument that formalities had

not been complied with or that the same had not been notified,

does not enable the court to hold that the communication

dated 16.5.1995 must be understood only as a mere letter in

reply and nothing more. The power to issue such a direction

is clearly traceable to Section 34 of the Act and the High Court

had obviously directed the Government to take that decision

having in mind Section 34 of the Act. It is therefore clear that

the direction dated 16.5.1995 is a direction in terms of Section

34 of the Act. The High Court, in our opinion, has not

considered the effect of the direction issued in O.P. No. 13233

of 1992-A and connected cases, and the decision taken by the

Government pursuant to that direction and the status of the

communication dated 16.5.1995.

15. The High Court has rested its decision on the

direction of the Government dated 27.3.1984 authorizing

KSRTC to pay pension to its employees as per KSR and the

acceptance of the same by KSRTC by issue of the order dated

5.9.1984, obeying the direction and providing for payment of

pension in terms of KSR as an incorporation of KSR by

reference. Proceeding from this, the High Court has held that

pension is payable to all the employees of KSRTC in terms of

Part III of KSR and this led to the position even as regards the

date of payment as fixed by the Government for its employees.

The High Court, though it noticed the decision in Union of

India Vs. P.N. Menon & ors. [AIR 1994 SC 2221] regarding

the entitlement of KSRTC to look into various aspects like its

financial ability to pay, has proceeded to reason that in view of

the adoption of Part III of KSR, the Corporation had lost its

right to fix a cut-off date in the absence of any direction under

Section 34 of the Act. The court has also held that

communication of the Government dated 24.9.1992 had only

directed deferring of payment of pension as recommended by

Fifth Pay Commission and this meant that the Corporation

had no right to fix a cut-off date especially in the absence of

any regulation framed by it. We are not in a position to

endorse this reasoning or conclusion of the High Court.

KSRTC is an autonomous Corporation established under the

Road Transport Corporation Act, 1950. It can regulate the

service of its employees by making appropriate regulations in

that behalf. Until such regulations are framed, it is entitled to

take note of its financial health in considering whether a

particular recommendation for enhanced pay or pension in

respect of Government employees should be adopted by it and

if it is to adopted by it, from what point of time. This, of

course, would be subject to any direction that may be issued

by the State Government in terms of Section 34 of the Act. In

the letter dated 24.9.1992 referred to by the High Court, the

Government had indicated that since the financial position of

KSRTC was not sound, the question of accepting the

recommendations of the Fifth Pay Commission relating to

pension and allied matters may be deferred for better times.

When the High Court intervened and directed the Government

to take a policy decision and not leave the matter pending in

view of the fact that the pensioners were generally senior

citizens, the Government reconsidered the question and after

examining the position in detail in the context of the financial

position of KSRTC, took a decision that the grant of benefits of

the Fifth Pay Commission to the pensioners of KSRTC may be

deferred for better times. We have already held that this was a

direction to KSRTC in terms of Section 34 of the Act. KSRTC

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was therefore bound to implement this direction in the

absence of a regulation in that behalf.

16. The High Court, in our view, is not correct in

thinking that there is any compulsion on KSRTC on the mere

adoption of Part III of KSR, to automatically give all

enhancements in pension and other benefits given by the

State Government to its employees. There is no provision in

Part III of KSR containing such a stipulation. It only provides

for payment of pension. The question of revision or

enhancement of pension to its employees is left to KSRTC, an

autonomous Corporation, subject of course to any direction

that may be issued by the State Government under Section 34

of the Act. The mere adopting of Part III of KSR does not

therefore shackle or control the power of KSRTC to take a

decision in the absence of any regulation already framed, that

the enhanced pensionary benefits as recommended by the

Fifth Pay Commission need not be paid commencing on the

same date as the State Government employees but the

question of enhancing pension could be considered at a later

point of time. There is nothing in Part III of KSR to control the

power of KSRTC to decide that the recommendations of the

Fifth Pay Commission may be implemented with effect from a

particular date or that it need not be implemented at all in

view of the precarious financial condition of KSRTC. The

reasoning therefore that the direction to adopt Part III of KSR

and the order adopting it by KSRTC would denude KSRTC of

its power to fix a cut-off date for adopting and implementing

the recommendations of the Fifth Pay Commission is found to

be not sustainable.

17. Learned counsel for the respondents argued that

what the Government has directed is only to defer the

payment of pension and that meant that pension as

recommended by the Fifth Pay Commission had become

payable but only the actual payment stood deferred to a future

point of time. In the context of what has happened here, this

argument cannot be accepted. Obviously, the issue was

whether the recommendations of the Fifth Pay Commission

regarding enhanced payment of pension and other allowances

to retired employees should be implemented by KSRTC in the

situation in which it was placed and the direction of the

Government was that since the financial position was not

sound, the question had to be deferred. The letter dated

16.5.1995 uses the expression:

"It has been decided that grant of benefits of

the Fifth Pay Commission to the pensioners of

KSRTC may be deferred for better times."

As we understand it, this communication means that the very

question of adopting the recommendations of the Fifth Pay

Commission stood postponed for better times and it is not

possible to read and understand it as directing that pension

had to be paid in terms of the recommendations of the Fifth

Pay Commission but its actual payment may be postponed.

The grant itself was put off to a later point of time by the said

communication. We, therefore, overrule this submission on

behalf of the respondents.

18. Even before us, also, it has been clearly pleaded by

KSRTC that its financial position is unsound. In fact, the High

Court has also noticed it. This Court has held that the

financial position of a Corporation like KSRTC is certainly

relevant when the Corporation takes a decision as to whether

it should implement a recommendation for enhanced

emoluments and pension. Since we find from the relevant

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aspects brought out that the financial position of KSRTC is not

sound, we are of the view that the decision taken by the State

Government not to implement, here and now, the

recommendations of the Fifth Pay Commission for KSRTC and

the decision based on it by KSRTC are fully justified.

Certainly, the decision cannot be said to be vitiated by any

extraneous consideration or perverse appreciation of the

circumstances obtaining.

19. The result of this discussion is to hold that the High

Court was in error in its decision and in directing that pension

had to be paid in terms of the recommendations of the Fifth

Pay Commission. We therefore allow these appeals and setting

aside the decisions of the High Court dismiss the writ petitions

filed by the writ petitioners. We make no order as to costs.