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PETITIONER:

K.I. SHEPHARD & ORS. ETC. ETC.

Vs.

RESPONDENT:

UNION OF INDIA & ORS.

DATE OF JUDGMENT18/09/1987

BENCH:

MISRA RANGNATH

BENCH:

MISRA RANGNATH

DUTT, M.M. (J)

CITATION:

1988 AIR 686 1988 SCR (1) 188

1987 SCC (4) 431 JT 1987 (3) 600

1987 SCALE (2)599

CITATOR INFO :

F 1989 SC 568 (12)

RF 1989 SC1136 (44)

RF 1992 SC 248 (79)

ACT:

Banking Regulation Act, 1949:

Section 45-Amalgamation of banks-Employees excluded

from employment by transferee banks-Draft scheme excluding

names of employees-Doctrine of natural justice-Whether

applicable-Post-

decisional hearing-Whether sufficient-Examination of

dispute regarding requirement of Procedure Whether

precluded-Schememaking process-Whether legislative.

Administrative Law:

Amalgamation of banks-Exclusion of employees from

employment by transferee banks in accordance with

amalgamation scheme-Doctrine of natural justice-

Applicability of.

HEADNOTE:

The Hindustan Commercial Bank, the Bank of Cochin Ltd.

and Lakshmi Commercial Bank were amalgamated with Punjab

National Bank, Canara Bank, State Bank of India respectively

in terms of separate schemes drawn under the Banking

Regulation Act, 1949, and pursuant thereto 125 employees of

these banks were excluded from employment, and their

services were not taken over by the respective transferee

banks. Some of these excluded employees filed writ petitions

before the High Court which granted partial relief, but on

appeal by the transferee Bank the Writ Petitions were

dismissed by the Division Bench.

Against this, appeals by Special Leave were filed

before this Court. Some of the excluded employees filed writ

petitions before this Court directly.

It was contended on behalf of the excluded employees

that the draft schemes did not include any name of employees

intended to be excluded; that no opportunity of being heard

as afforded to them before exclusion was ordered, and the

authorities concerned had not acted fairly; that none of

them was responsible for ficticious, improper or

189

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on-business like advances of loan to parties thereby

bringing conditions nearabout bankruptcy for the appropriate

banking companies, that many other employees against whom

there were definite charges already pending enquiry or even

orders of dismissal had been proposed had been taken over

and retained in service of the transferee banks while these

excluded employees, without justification, had been called

upon to face this unfortunate situation.

The transferee banks, the Reserve Bank of India and the

Union of India filed affidavits in opposition. It was

contended on behalf of the Union of India that the scheme in

respect of each of the amalgamated banks had been approved

by it as required under the Act and since finality was

attached to such schemes, the schemes could not be

challenged, particularly in view of the provisions contained

in Article 31-A of the Constitution. It was contended on

behalf of the Reserve Bank of India that law did not require

that the draft scheme should contain the names of the

employees to be excluded, that the incorporation of the

names finalised on the basis of scrutiny of the records

before the schemes were placed before the RBI was sufficient

compliance of the requirements of the law; that the

provisions of the Act did not confer any right on the

employees of being heard; that the scheme-making process was

legislative in character and, therefore, did not come within

the ambit of natural justice, and the action, not being

judicial or quasijudicial and, at the most, being

administrative or executive was also not open to challenge

on allegations of violation of rules of natural justice;

that moratorium under the statutory provisions could not be

beyond six months and in view of the fact that the entire

operation had to be finalised within a brief time frame, the

requirement of an enquiry by notice to all the officers to

be excluded could not have been intended to be implanted

into the provisions of section 45 and that provision of

compensation had been made for those who were excluded from

the respective schemes.

Allowing the writ petitions and appeals, this Court,

^

HELD: 1. Rules of natural justice apply to

administrative action and the decision to exclude a section

of the employees without complying with requirements of

natural justice was bad. [206H]

2.1 Fair play is part of public policy and a guarantee

for justice to citizens. In our system of Rule of Law, every

social agency conferred with power is required to act fairly

so that social action would be just, and there would be

furtherance of the well-being of citizens. [207E]

190

2.2 The rules of natural justice have developed with

the growth of A civilization and the content thereof is

often considered as a proper measure of the level of

civilization and Rule of Law prevailing in the community.

[207E-F]

2.3 Natural justice generally requires that persons

liable to be directly affected by proposed administrative

acts, decisions or proceedings be given adequate notice of

what is proposed so that they may be in a position (a) to

make representation on their own behalf; (b) or to appear at

a hearing or enquiry (if one is held); and (c) effectively

to prepare their own case and to answer the case (if any)

they had to meet. Even when a State agency acts

administratively, rules of natural justice would

apply.[206C-D]

3.1 Section 45 of the Banking Regulations Act provides

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a legislative scheme and the different steps required to be

taken have been put one after the other. On a simple

construction of sub-sections (5) and (6) and on the basis of

the sequence pattern adopted in section 45, it is clear that

the Act contemplates the employees to be excluded to be

specifically named in the draft scheme. Since it is a draft

scheme prepared by RBI and right to object or to make

suggestions is extended to both the banking company as also

the transferee bank, and in view of the fact that clause (i)

of sub-section (5) specifies this item to be a matter which

may be included in the scheme, it must follow that the

legislative intention is that the scheme would incorporate

the names of such employees as are intended to be excluded

in accordance with the scheme. Once it is incorporated in

the scheme, the banking company as also the transferee bank

would be entitled to suggest/object to the inclusion of

names of employees. [199E-F; H; 200A-B]

3.2 In case some employees of the banking company are

intended to be excluded, their names have to be specifically

mentioned in the scheme at the draft stage. The requirement

of specific mention is significant and the legislature must

be taken to have intended compliance of the requirement at

that stage. The excluded employees in the instant case, were

in employment under the contract in the banking companies

which were private banks. They have been excluded from

service under the transferee banks and the contracts had

been terminated as a result of inclusion of their names in

the schemes. This exclusion has adversely affected this

category of employees and has brought about prejudice and

adverse civil consequences to them. [200D-E]

4.1 Natural justice cannot be employed in the exercise

of legisla-

191

tive power. Power has been conferred on the RBI in certain

situations to A take steps for applying to the Central

Government for an order of moratorium and during the period

of moratorium to propose either reconstruction or

amalgamation of the banking company. A scheme for the

purposes contemplated has to be framed by RBI and placed

before the Central Government for sanction. Power has been

vested in the Central Government in terms of what is

ordinarily known as a Henery-8 clause for making orders for

removal of difficulties. [201H; 202A-B]

4.2 Section 45(11) requires that copies of the scheme

as also such orders made by the Central Government are to be

placed before both Houses of Parliament. This requirement

does not make the exercise in regard to schemes a

legislative process. Framing of the scheme under section 45

does not involve a legislative process, and as such, rules

of natural justice are applicable to the instant case.

[202C]

4.3 The fact that orders made by the Central Government

for removing difficulties as contemplated under sub-clause

(10) were also to be placed before the two Houses of

Parliament makes it abundantly clear that the placing of the

scheme before the two Houses is not a relevant test for

making the scheme framing process legislative. [203B]

5.1 RBI which monitored the three amalgamations was

required to act fairly in the facts of the case. The

situation necessitated a participatory enquiry in regard to

the excluded employees. If an opportunity to know the

allegations and to have their say had been afforded, they

could have no grievance on this score. The action deprives

them of their livelihood and brings adverse civil

consequences and could obviously not be taken on the ipse

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dixit of RBI owners without verification of facts. In view

of the time frame, a detailed enquiry may not be possible

but keeping the legislative scheme in view, perhaps, a

simpler enquiry could be afforded. [206E-F]

5.2 In the facts of the case, there is no justification

to hold that rules of natural justice have been ousted by

necessary implication on account of the time frame. On the

other hand, the time limited by statute provides scope for

an opportunity to be extended to the intended excluded

employees before the scheme is finalised so that a hearing

commensurate to the situation is afforded before a section

of the employees is thrown out of employment. [207F-G]

5.3 There is no justification to think of a post-

decisional hearing. H

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on the other hand, the normal rule should apply. The

excluded employees have already been thrown out of

employment and having been deprived of livelihood they must

be facing serious difficulties. There is no justification to

throw them out of employment and then given them an

opportunity of representation when the requirement is that

they should have the opportunity as a condition precedent to

action. It is common experience that once a decision has

been taken, there is a tendency to uphold it and a

representation may not really yield any fruitful purpose.

[208A-C]

6. Protection of the umbrella of conclusive evidence is

not attached to a situation as in the instant case, so as to

bar the question regarding the requirements of the procedure

laid down under the Act and the opportunity afforded to the

excluded employees from being examined. There is, therefore,

nothing in sub-section (7A) of section 45 to preclude

examination of the question. [208G]

[Each of the three transferee banks should take over

the excluded employees on the same terms and conditions of

employment under the respective banking companies prior to

amalgamation. The employees would be entitled to the benefit

of continuity of service for all purposes including salary

and perks throughout the period. It is open to the

transferee banks to take such action as they consider proper

against these employees in accordance with law. There is no

justification to penalise some of the excluded employees who

have not come to the Court. They too shall be entitled to

the same benefits as the petitioners.] [208H; 209A-B]

Union of India & Anr. v. Cynamide India Ltd. & Anr.,

[1987] 2 SCC 720; Perre Brothers v. Citrus organisation

Committee, [1975] 10 SASR 555; Re (H) K (an infant), [1967]

1 AER 226; State of Orissa v. Dr. (Miss) Binapani Dei &

Ors., [1967] 2 SCR 625; A.K Kraipak & ors., v. Union of

India & Ors., [1970] 1 SCR 457; Chandra Bhavan Boarding and

Lodging, Bangalore v. The State of Mysore & Anr., 11970] 2

SCR 600; Swadeshi Cotton Mills v. Union of India, [1981] 2

SCR 533 and Smt. Somavanti & Ors. v. State of Punjab & Ors.,

[1963] 2 SCR 774, referred to.

JUDGMENT:

ORIGINAL JURISDICTION: Writ Petition No. 177 of 1987

etc. etc.

(Under Article 32 of the Constitution of India).

Dr. L.M. Singhvi, K.K. Venugopal, M.K. Ramamurthi, V.M.

193

Tarkunde, R.K. Garg, Ravi P. Wadhwani, Vrinda Grover,

Vandana Chak, Ranjeet Kumar, M.N. Krishnamani, V. Shekhar,

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B.S. Maan, M.A. Chinnaswami, V.J. Francis, Mathai M.

Paikeday, N.M. Popli, M.A. Krishnamurthi, Mrs. Chandan

Ramamurthi, Balbir Singh, Rajan Karanjawala, Mrs. Manik

Karanjawala, Ravi P. Wadhwani, P.N. Mishra, Ashok Grover,

Ezaz Manbool, and K.K. Mohan for the Petitioners.

G. Ramasvamy, Additional Solicitor General, Dr. Y.S.

Chitale, M.M. Abdul Khader, Soli J. Sorbjee, K.N. Bhat, G.L.

Sanghi, O.C. Mathur, Miss Srieen Sethna, Harish Salve, H.S.

Parihar, Vipin Chandra, Vijay Kr. Verma, Miss Madhu

Moolchandani, Gopal Subramium, Halida Khatoon, Mrs. Sushma

Suri and P. Parmeshwaran for the Respondents.

E.C. Aggarwala and D.D. Gupta for the Intervener.

The Judgment of the Court was delivered by

RANGANATH MISRA, J. The writ petitions under Article 32

of the Constitution and appeals by special leave are against

the judgment of the Division Bench of the Kerala High Court

in writ appeals have a common set of facts as also law for

consideration. These matters have been heard together and

are disposed of by this common judgment.

Hindustan Commercial Bank ('Hindustan' for short).

The Bank of Cochin Ltd. (hereafter referred to as 'Cochin

Bank') and Lakshmi Commercial Bank ('Lakshmi' for short)

were private banks. Action was initiated under section 45 of

the Banking Regulation Act, 1949 ('Act' for short) for

amalgamation of these three banks with Punjab National Bank,

Canara Bank and State Bank of India respectively in terms of

separate schemes drawn under that provision of the Act.

Amalgamation has been made. Pursuant to the schemes, 28

employees of Hindustan, 21 employees of Cochin Bank and 76

employees of Lakshmi were excluded from employment and their

services were not taken over by the respective transferee

banks. Some of these excluded employees of the Cochin Bank

went before the Kerala High Court for relief under Article

226 of the Constitution. A learned Single Judge gave them

partial relief but on an appeal to the Division Bench by the

transferee bank concerned the writ petitions have been

dismissed. The civil appeals are against the decision of the

Division Bench. The writ petitions directly filed before

this Court are by some of the excluded employees of

Hindustan and Lakshmi respectively.

194

Though employees of the other two banks had not

challenged the vires of section 45 of the Act, on behalf of

Lakshmi such a challenge has been made. Since the grounds of

attack on this score did not Impress us at all, we do not

propose to refer to that aspect of the submissions involving

interpretation of Article 31-A, Article 16 and Article 21.

It has often been said by this Court that Courts should not

enter into constitutional issues and attempt interpretation

of its provisions unless it is really necessary for disposal

of the dispute. In our opinion, this group of cases can be

disposed of without reference to question of vires of some

part of section 45 of the Act being examined. Counsel on

behalf of the excluded employees have broadly contended that

the draft schemes did not include any name of employees

intended to be excluded; no opportunity of being heard was

afforded to them before exclusion was ordered under the

schemes and the authorities concerned have not acted fairly;

they deny the allegation that any of them was responsible

for ficticious, improper or non-business like advances of

loan to parties thereby bringing conditions near about

bankruptcy for the appropriate banking companies; many other

employees against whom there were definite charges already

pending enquiry or even orders of dismissal had been

proposed have been taken over and retained in service of the

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transferee banks while these excluded employees without

justification have been called upon to face this unfortunate

situation.

The transferee banks, the Reserve Bank of India

(hereafter referred to as RBI for short) and the Union of

India have appeared and filed affidavits in opposition. The

Union of India has contended that the scheme in respect of

each of the banks that has got amalgamated had been approved

by it as required under the Act and since finality was

attached to such schemes challenge was not open against the

schemes particularly in view of the provisions contained in

Article 3 I-A of the Constitution. On behalf of the Reserve

Bank of India, several contentions were raised by way of

opposition and shortly stated these submissions are:-

(1) Law does not require that the draft scheme

should contain the names of the employees to be excluded;

(2) The incorporation of the names finalised on

the basis of scrutiny of the records before the schemes were

placed before the RBI was sufficient compliance of the

requirements of the law;

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(3) the provisions of the Act did not confer any

right on the employees of being heard;

(4) the scheme-making process was legislative in

character and therefore did not come within the ambit

of natural justice. Alternately the action not being

judicial or quasi-judicial and at the most being

administrative or executive was also not open to

challenge on allegations of violation of rules of

natural justice;

(5) moratorium under the statutory provisions

could not be beyond six months and in view of the fact

that the entire operation had to be finalised within a

brief time frame, the requirement of an enquiry by

notice to all the officers intended to be excluded

could not have been intended to be implanted into the

provisions of section 45; and

(6) Provision of compensation has been made for

those who were excluded from the respective scheme.

Each of the transferee banks generally adopted the stand

taken by RBI.

Before we proceed to examine the tenability of the

several contentions and counter contentions advanced at the

hearing, it is appropriate that we refer to the relevant

provisions of the Act. The entire law applicable to the

facts of these cases is to be found in Part Ill of the Act

and in particular in section 45. As far as relevant, that

section provides:

"Notwithstanding anything contained in the

foregoing provisions of this Part or in any other

law or any agreement or other instrument, for the

time being in force. where it appears to the

Reserve Bank that there is good reason so to do,

the Reserve Bank may apply to the Central

Government for an order of moratorium in respect

of a banking company.

(2) The Central Government, after considering

the application made by the Reserve Bank under

sub-section (1), may make an order of moratorium

staying the commencement or continuance of all

actions and proceedings against the company for a

fixed period of time on such terms and conditions

as it thinks fit and proper and may

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from time to time extend the period so however

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that the total period of moratorium shall not

exceed six months;

(3) ..................... ...................

(4) During the period of moratorium, if the

Reserve Bank is satisfied that-

(a) in the public interest; or

(b) in the interests of the depositors; or

(c) in order to secure the proper management

of the banking company; or

(d) in the interests of the banking system of

the country as a whole,-it is necessary so to do,

the Reserve Bank may prepare a scheme-

(i) for the reconstruction of the banking

company, or

(ii) for the amalgamation of the banking

company with any other banking institution (in

this section referred to as "the transferee

bank").

(5) The scheme aforesaid may contain

provisions for all or any of the following

matters, namely:-

(a)...............................................

(b)...............................................

(c)...............................................

(d)...............................................

(e)...............................................

(f)...............................................

(g)...............................................

(h)...............................................

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(i) the continuance of the services of all the

employees of the banking company (excepting such

of them as not being workmen within the meaning of

the Industrial Disputes Act, 1947 are specifically

mentioned in the scheme) in the banking company

itself on its reconstruction or, as the case may

be, in the transferee bank at the same

remuneration and on the same terms and conditions

of service, which they were getting or, as the

case may be, by which they were being governed,

immediately before the date of the order of

moratorium:

Provided.........................................

(j) notwithstanding anything contained in clause

(i) where any of the employees of the banking

company not being workmen within the meaning of

the Industrial Disputes Act, 1947 are specifically

mentioned in the scheme under clause (i), or where

any employees of the banking company have by

notice in writing given to the banking company or,

as the case may be, the transferee bank at any

time before the expiry of one month next following

the date on which the scheme is sanctioned by the

Central Government, intimated their intention of

not becoming employees of the banking company on

its reconstruction or, as the case may be, of the

transferee bank, the payment to such employees of

compensation, if any, to which they are entitled

under the Industrial Disputes Act, 1947, and such

pension, gratuity, provident fund and other

retirement benefits ordinarily admissible to them

under the rules or authorisations of the banking

company immediately before the date of the order

of moratorium:

(k)...............................................

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(I) ..............................................

(6) (a) A copy of the scheme prepared by the

Reserve Bank shall be sent in draft to the banking

company and also to the transferee bank and any

other banking company concerned in the

amalgamation, for suggestions and objections, if

any, within such period as the Reserve Bank may

specify for this purpose;

(b) the Reserve Bank may make such

modifications,

198

if any, in the draft scheme as it may consider

necessary in the light of the suggestions and

objections received from the banking company and

also from the transferee bank, and any other

banking company concerned in the amalgamation and

from any members, depositors or other creditors of

each of those companies and the transferee bank.

(7) The scheme shall thereafter be placed before

the Central Government for its sanction and the

Centraly Government may sanction the scheme

without any modifications or with such

modifications as it may consider necessary; and

the scheme as sanctioned by the Central Government

may specify in this behalf:

Provided .........................................

(7A) The sanction accorded by the Central

Government under sub-section (7), whether before

or after the commencement of section 21 of the

Banking Laws (Miscellaneous Provisions) Act, 1963,

shall be conclusive evidence that all the

requirements of this section relating to

reconstruction, or, as the case may be,

amalgamation have been com plied with and a copy

of the sanctioned scheme certified in writing by

an officer of the Central Government to be a true

copy thereof, shall, in all legal proceedings

(whether in appeal or otherwise and whether

instituted before or after the commencement of the

said section 21), be admitted as evidence to the

same extent as the original scheme.

(8) on and from the date of the coming into

operation of the scheme or any provision thereof,

the scheme or such provision shall be binding on

the banking company or, as the case may be, on the

transferee bank and any other banking company

concerned in the amalgamation and also on all the

members, depositors and other creditors and

employees of each of those companies and of the

transferee bank, and on any other person having

any right or liability in relation to any of those

companies or the transferee bank.............

(9)...............................................

(10) If any difficulty arises in giving effect to

the provisions

199

of the scheme, the Central Government may by order

do anything not inconsistent with such provisions

which appear to it necessary or expedient for the

purpose of removing the difficulty.

(11) Copies of the scheme or of any order made

under sub-section ( 10) shall be laid before both

Houses of Parliament, as soon as may be, after the

scheme has been sanctioned by the Central

Government or, as the case may be, the order has

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been made.

(12)..............................................

(13)..............................................

(14)..............................................

(15)..............................................

Allegations advanced on behalf of the excluded employees is

that the draft scheme contemplated under sub-section 6(a)

did not specifically mention names of the excluded employees

and at a later stage when the scheme was sent up by the RBI

to the Central Government a schedule containing the names of

the excluded employees was attached to each of the schemes.

Section 45 of the Act provides a legislative scheme and the

different steps required to be taken under this section have

been put one after the other. A reading of this section

indicates a sequence oriented pattern. What would ordinarily

be incorporated in the draft scheme is indicated in sub-

section (5). After the requirements of sub-section (5) are

complied with and the scheme comes to a presentable shape,

sub-section (6)(a) requires a copy thereof as prepared by

RBI to be sent to the banking company (transferer) as also

to the transferer bank. Clause (b) of sub-section (6)

authorises RBI to make modifications in the draft scheme as

it may consider necessary in the light of suggestions and

objections received from the banking company and the

transferee bank. On a simple construction of sub-sections

(5) and (6) and on the basis of the sequence pattern adopted

in section 45 it would be legitimate to hold that the Act

contemplates the employees to be excluded to be specifically

named in the draft scheme. Since it is a draft scheme

prepared by RBI and the right to object or to make

suggestions is extended to both the banking company as also

the transferee bank, and in view of the fact that clause

200

(i) of sub-section (5) specifies this item to be a matter

which may be included in the scheme, it must follow that the

legislative intention is that the scheme would incorporate

the names of such employees as are intended to be excluded

in accordance with the scheme. Once it is incorporated in

the scheme the banking company as also the transferee bank

would be entitled to suggest/object to the inclusion of

names of employees. It may be that the names of some of the

employees may have been wrongly included and the banking

company-the hither-to employer would be in a position to

suggest/object to the inclusion of the names or it may even

be that names of some undesirable employees which should

have been left out have been omitted and the banking company

as the extant employer of such employees would be most

competent to deal with such a situation to bring about

rectifications by exercising the power to suggest/object to

the draft scheme. The contention advanced on behalf of RBI

that since it is open to it under sub-section (6)(b) of

section 45 to make modifications of the draft scheme, even

if the names were not included earlier, at the stage of

finalising the scheme for placing it before the Central

Government as required under sub-section (7), the earlier

non-inclusion is not a contravention is not acceptable. We

are of the view that in case some employees of the banking

company are intended to be excluded, their names have to be

specifically mentioned in the scheme at the draft stage. The

requirement of specific mention is significant and the

legislature must be taken to have intended compliance of the

requirement at that stage. Mr. Salve for the RBI adopted the

stand that the provisions of section 45 did not specifically

concede a right of objection or making of suggestions to

employees and in sub-section (6)(b) mention was made only of

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members, depositors or other creditors. For the reasons we

have indicated above, this aspect of the contention does not

impress us.

It is the common case of RBI as also the transferee

banks that the records of service of each of the employees

had been scrutinised and the names for inclusion in the

scheme were picked up on the basis of materials like

irresponsible action in regard to sanction of loans and

accommodations to customers which affected the financial

stability of the banking company concerned. Such an

allegation made in the counter-affidavit in this Court has

been seriously disputed by the litigating excluded

employees. It is their positive case that there was no

foundation in such allegation and dubious loans, if any, had

been sanctioned under instructions of the superior in the

banking company and, therefore, did not involve any

delinquency on the part of such employees. Since it is the

case of the respondents that exclusion had

201

been ordered on the basis of an objective assessment and the

very A foundation of the allegation upon which such

assessment has been made is disputed, a situation arose

where facts had to be ascertained, and it involved

assessment. That has admittedly not been done.

These employees were in employment under contract in

the banking companies which were private banks. They have

been excluded from service under the transferee banks and

the contracts have now been terminated as a result of

inclusion of their names in the schemes. It cannot be

disputed-nay has not been-that exclusion has adversely

affected this category of employees and has brought about

prejudice and adverse civil consequences to them. Two

contentions have been raised with reference to this aspect

of the matter:-,,

(1) There has been infraction of natural justice

and

(2) The transferee banks which are 'State' and RBI

which has monitored the operation being admittedly

'State' their action in excluding some of the employees

of the banking company and taking over the services of

others who are similarly situated is hit by Article 14

of the Constitution. It may be pointed out that

according to the excluded employees, many facing

similar allegations and/or in worse situation have been

taken over.

Whether there is infraction of Article 14 of the

Constitution on the allegation advanced would depend upon

facts relating to the excluded employees as also the

allegedly derelict employees whose services have been taken

over. In the absence of an enquiry in which the excluded

employees should have been given an opportunity of

participation it has become difficult for us to probe into

the matter further. F

Admittedly the excluded employees have neither been put

to notice that their services were not being continued under

the transferee banks nor had they been given an opportunity

of being heard with reference to the allegations now

levelled against them. Learned counsel for RBI and the

transferee banks have taken the stand that the scheme-making

process under section 45 is legislative in character and,

therefore, outside the purview of the ambit of natural

justice under the protective umbrella whereof the need to

put the excluded employees to notice or enquiry arose. It is

well-settled that natural justice will not be employed in

the exercise of legislative power and Mr. Salve has rightly

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relied upon a recent decision of this Court being Union of

India H

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& Anr. v. Cynamide India Ltd. & Anr., [ 1987] 2 SCC 720 in

support of such a position. But is the scheme-making process

legislative? Power has been conferred on the RBI in certain

situations to take steps for applying to the Central

Government for an order of moratorium and during the period

of moratorium to propose either reconstruction or

amalgamation of the banking company. A scheme for the

purposes contemplated has to be framed by RBI and placed

before the Central Government for sanction. Power has been

vested in the Central Government in terms of what is

ordinarily known as a Henery-8 clause for making orders for

removal of difficulties. Section 45(11) requires that copies

of the schemes as also such orders made by the Central

Government are to be placed before both Houses of

Parliament. We do not think this requirement makes the

exercise in regard to schemes a legislative process. It is

not necessary to go to any other authority as the very

decision relied upon by Mr. Salve in the case of Cynamide

India Ltd. (supra) lays down the test. In paragraph 7 of the

judgment it has been indicated:-

"Any attempt to draw a distinct line between

legislative and administrative functions, it has

been said, is 'difficult in theory and impossible

in practice'. Though difficult, it is necessary

that the line must sometimes be drawn as different

legal rights and consequences may ensue. The

distinction between the two has usually been

expressed as 'one between the general and the

particular'. 'A legislative act is the creation

and promulgation of a general rule of conduct

without reference to particular cases; an

administrative act is the making and issue of a

specific direction or the application of a general

rule to a particular case in accordance with the

requirements of policy'. 'Legislation is the

process of formulating a general rule of conduct

without reference to particular cases and usually

operating in future; administration is the process

of performing particular acts, of issuing

particular orders or of making decisions which

apply general rules to particular cases'. It has

also been said: "Rule-making is normally directed

towards the formulation of requirements having a

general application to all members of a broadly

identifiable class" while, "an adjudication, on

the other hand, applies to specific individuals or

situations. But this is only a broad distinction,

not necessarily always true."

Applying these tests it is difficult to accept Mr. Salve's

contention that

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the framing of the scheme under section 45 involves a

legislative process. There are similar statutory provisions

which require placing of material before the two Houses of

Parliament yet not involving any legislative activity. The

fact that orders made by the Central Government for removing

difficulties as contemplated under sub-clause (10) are also

to be placed before the two Houses of Parliament makes it

abundantly clear that the placing of the scheme before the

two Houses is not a relevant test for making the scheme

framing process legislative. We accordingly hold that there

is no force in the contention of Mr. Salve that the process

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being legislative, rules of natural justice were not

applicable.

The alternate contention on this score is that the

scheme-making process being an executive activity or

alternately an administrative matter, rules of natural

justice have no application. This contention has again to be

rejected. Neither in "Privy Council, Natural Justice and

Certiorari" has indicated:-

"Formerly the presumption had been that there

WAS obligation to give a hearing unless the

statute itself indicated such an obligation; now

the presumption is that there is such an

obligation unless the statute clearly excludes it,

notwithstanding the vesting of a power, in

subjective terms, in a minister responsible to

Parliament."

As has beer. pointed out by Wells J. in Perre Brothers v.

Citrus organisation Committee, [1975] 10 SASR 555:-

"It is now well established-and there is no

need for me to canvass the innumerable authorities

bearing on this point-that duties,

responsibilities and functions of an

administrative authority may be purely

ministerial, or they may embody some quasi or

semi-judicial characteristic.

At one time a good deal of ingenuity-and with

all respect it seems to me a great deal of energy-

was wasted in attempting to discern whether a

particular function was administrative or quasi-

judicial. In my view the House of Lords, and now

the High Court, have, to a very large extent set

all such controversies at rest.

In my opinion, the test now is not so much as

to whether one can fairly call something

"ministerial" or

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"administrative", or "quasi-judicial" but whether

the duties of a non-judicial authority must,

having regard to the wording of the Act, be

carried out in a spirit of judicial fairness. "

In Re (H) K (an infant), [1967] 1 AER 226 Lord Parker,

CJ, found that the immigration officer was not acting in a

judicial or quasi-judicial capacity. Yet, the learned Chief

Justice held that he still had to act fairly. In that case

it meant giving K an opportunity of satisfying the officer

as to his age, and for that purpose he had to let K know

what his immediate impression was so that K could disabuse

him of it. Lord Parker observed:-

"I appreciate that in saying that, it may be

said that one is going further than is permitted

on the decided cases because heretofore at any

rate the decisions of the courts do seem to have

drawn a strict line in these matters according to

whether there is or is not a duty to act

judicially or quasi-judicially".

The obligation to act fairly even in administrative decision

making has since been widely followed.

Mulla in 'Fairness: The New Natural Justice' has

stated:-

"Natural justice co-exists with, or

reflected, a wider principle of fairness in

decision-making and that all judicial and

administrative decision-making and that all

judicial and administrative decision-makers had a

duty to act fairly. "

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In the case of State of Horsily v. Dr. (Miss) Binapani Dei &

ors., [ 1967] 2 SCR 625 this Court observed:-

"It is true that the order is administrative

in character but even an administrative order

which involves civil consequences as already

stated, must be made consistently with the rules

of natural justice after informing the first

respondent of the case of the State, the evidence

in support thereof and after giving an opportunity

to the first respondent of being heard and meeting

or explaining the evidence. No such steps were

admittedly taken; the High Court was, in our

judgment, right in setting aside the order of the

State."

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ln A.K Kraipak & ors. v. Union of India & ors., [ 1970] 1

SCR 457 a Constitution Bench quoted with approval the

observations of Lord Parker in Re: (H) K (an infant)

(supra). Hegde, J. speaking for the Court stated:

"Very soon thereafter a third rule was

envisaged and that is that quasi-judicial

enquiries must be held in good faith, without bias

and not arbitrarily or unreasonablly. But in the

course of years many more subsidiary rules came to

be added to the rules of natural justice. Till

very recently it was the opinion of the courts

that unless the authority concerned was required

by the law under which it functioned to act

judicially there was no room for the application

of the rules of natural justice. The validity of

that limitation is now questioned. If the purpose

of the rules of natural justice is to prevent

miscarriage of justice one fails to see why those

rules should be made inapplicable to

administrative enquiries. Often times it is not

easy to draw the line that demarcates

administrative enquiries from quasi-judicial

enquiries. Enquiries which were considered

administrative at one time are now being

considered as quasi-judicial in character.

Arriving at a just decision is the aim of both

quasi-judicial enquiries as well as administrative

enquiries. An unjust decision in an administrative

enquiry may have more far reaching effect than a

decision in a quasi-judicial enquiry."

These observations in A.K. Kopak's (supra) case were

followed by another Constitution Bench of this Court in

Chandra Bhavan Boarding and Lodging, Bangalore v. The State

of Mysore & Anr., l 19701 2 SCR 600. In Swadeshi Cotton

Mills v. Union of India, [1981] 2 SCR 533 a three-Judge

Bench of this Court examined this aspect of natural justice.

Sarkaria, J. who spoke for the Court, stated:-

"During the last two decades, the concept of

natural justice has made great strides in the

realm of administrative law. Before the epoch-

making decision of the House of Lords in Ridge v.

Baldwin, it was generally thought that the rules

of natural justice apply only to judicial or

quasi-judicial proceedings; and for the purpose,

whenever a breach of the rule of natural justice

was alleged, Courts in England used to ascertain

whether the impugned action was taken by the

statutory authority or tribunal in the exercise of

its

206

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administrative or quasi-judicial power. In India

also, this was the position before the decision of

this Court in Dr. Bina Pani Dei's case (supra);

wherein it was held that even an administrative

order or decision in matters involving civil

consequences, has to be made consistently with the

rules of natural justice. This supposed

distinction between quasi-judicial and

administrative decisions, which was perceptibly

mitigated in Bina Pani Dei's case (supra) was

further rubbed out to a vanishing point in A.K.

Kraipak's case (supra) .........................

".

On the basis of these authorities it must be held that even

when a State agency acts administratively, rules of natural

justice would apply. As stated, natural justice generally

requires that persons liable to be directly affected by

proposed administrative acts, decisions or proceedings be

given adequate notice of what is proposed so that they may

be in a position (a) to make representations on their own

behalf; (b) or to appear at a hearing or-enquiry (if one is

held); and (c) effectively to prepare their own case and to

answer the case (if any) they have to meet.

Natural justice has various facets and acting fairly is

one of them. RBI which monitored the three amalgamations was

required to act fairly in the facts of the case. The

situation necessitated a participatory enquiry in regard to

the excluded employees. Since the decision to exclude them

from service under the transferee banks is grounded upon a

set of facts the correctness whereof they deny, if an

opportunity to know the allegations and to have their say

had been afforded, they could have no grievance on this

score. The action deprives them of their livelihood and

brings adverse civil consequences and could obviously not be

taken on the ipse dixit of RBI officers without verification

of facts. It is quite possible that a manoeuvring officer of

the banking company adversely disposed of towards a

particular employee of such bank could make a report against

such employee and have him excluded from further service

under the transferee bank. The possibility of exclusion on

the basis of some mistake such as to identity cannot also be

ruled out. There is all the more apprehension of this type

is the process has to be completed quickly and very often

the records of a large number of employees have to be

scrutinised. We are of the view that rules of natural

justice apply to administrative action and in the instant

cases the decision to exclude a section of the employees

without complying with requirements of natural justice was

bad.

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It has been contended on behalf of respondents that

moratorium could be for a total period of six months and

that was the time allowed for the entire operation to be

conducted. In view of the time frame, by necessary

implication it must follow that application of natural

justice compliance of which would involve a time-consuming

process was ruled out. We do not think that there is any

merit in this contention either. As a fact, in respect of

the three banks the total number of excluded employees is

around 125. It is the common case of parties that

proceedings were pending against some of them. It may be

that in view of the time frame a detailed enquiry involving

communication of allegations, show cause, opportunity to

lead evidence in support of the allegations and in defence

of the stand of the employees may not be possible. Keeping

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the legislative scheme in view perhaps a simpler enquiry,

for instance, communication of the allegation and even

receiving an explanation and in cases where the allegation

was serious or there was a total denial though there was

firm basis for the allegation a single personal hearing

could be afforded. In this case we are not really concerned

with the manner or extent of hearing as there has been no

hearing at all. It must, therefore, be held that the action

of excluding these employees in the manner done cannot be

supported.

Fair play is a part of the public policy and is a

guarantee for justice to citizens. In our system of Rule of

Law every social agency conferred with power is required to

act fairly so that social action would be just and there

would be furtherance of the well-being of citizens. The

rules of natural justice have developed with the growth of

civilisation and the content thereof is often considered as

a proper measure of the level of civilisation and Rule of

Law prevailing in the community. Man within the social frame

has struggled for centuries to bring into the community the

concept of fairness and it has taken scores of years for the

rules of natural justice to conceptually enter into the

field of social activities. We do not think in the facts of

the case there is any justification to hold that rules of

natural justice have been ousted by necessary implication on

account of the time frame. On the other hand we are of the

view that the time limited by statute provides scope for an

opportunity to be extended to the intended excluded

employees before the scheme is finalised so that a hearing

commensurate to the situation is afforded before a section

of the employees is thrown out of employment.

We may now point out that the learned Single Judge of

the Kerala High Court had proposed a post-amalgamation

hearing to meet the situation but that has been vacated by

the Division Bench. For the

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reasons we have indicated, there is no justification to

think of a post-decisional heading. On the other hand the

normal rule should apply. It was also contended on behalf of

the respondents that the excluded employees could now

represent and their cases could be examined. We do not think

that would meet the ends of justice. They have already been

thrown out of employment and having been deprived of

livelihood they must be facing serious difficulties. There

is no justification to throw them out of employment and then

given them an opportunity of representation when the

requirement is that they should have the opportunity

referred to above as a condition precedent to action. It is

common experience that once a decision has been taken, there

is a tendency to uphold it and a representation may not

really yield any fruitful purpose.

'Amalgamation' as such saved under Article 31A(1)(c) of

the Constitution is not under challenge here. Strong

reliance, however, had been placed on the provisions of sub-

section (7A) of section 45 of the Act. The relevant part of

it is as requoted here for convenience:-

"The sanction accorded by the Central

Government under sub-section (7) .. shall be

conclusive evidence that all the requirements of

this section relating to ............ amalgamation

have been complied-with

This provision is indeed one for purposes of evidence.

In Smt. Somavanti & ors. v. State of Punjab & Ors., [19631 2

SCR 774 this Court pointed out that there was no real

difference between 'conclusive proof' provided for in

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section 4 of the Evidence Act and 'conclusive evidence' as

appearing in sub-section (7A). This provision does not bar

the raising of a dispute of the nature received here. As we

have already pointed out, amalgamation is not under

challenge. Parties are disputing as to what exactly are the

requirements of the procedure laid down under the Act and

the position that no opportunity was afforded to the

excluded employees is not in dispute. To a situation as here

protection of the umbrella of conclusive evidence is not

attached so as to bar the question from being examined.

There is, therefore, nothing in sub-section (7A) to preclude

examination of the question canvassed here

The writ petitions and the appeals must succeed. We set

aside the impugned judgments of the Single Judge and

Division Bench of the Kerala High Court and direct that each

of the three transferee banks

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should take over the excluded employees on the same terms

and conditions of employment under the respective banking

companies prior to moratorium. The employee would be

entitled to the benefit of continuity of service for all

purposes including salary and perks throughout the period.

We leave it open to the transferee banks to take such action

as they consider proper against these employees in

accordance with law. Some of the excluded employees have not

come to Court. There is no justification to penalise them

for not having litigated. They too shall be entitled to the

same benefits as the petitioners. Ordinarily the successful

parties should have been entitled to costs but in view of

the fact that they are going back to employment, we do not

propose to make orders of costs against their employers. We

hope and trust that the transferee banks would look at the

matter with an open mind and would keep themselves alive to

the human problem involved in it.

N.P.V. Petitions & Appeals allowed.

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