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PETITIONER:

STATE BANK OF INDIA & OTHERS.

Vs.

RESPONDENT:

T.J. PAUL

DATE OF JUDGMENT: 04/05/1999

BENCH:

M. Jagannadha Rao. & S.N. Phukan,

JUDGMENT:

M.JAGANNADHA RAO,J.

Leave granted.

This appeal is preferred by the State Bank of India,

Bombay, its Deputy Managing Director(Appellate Authority),

Bombay and the Chief General Manager(Disciplinary

Authority), Madras against the judgment of the Division

Bench of the Madras High Court in W.A. No.490 of 1998. By

that judgment, the Division Bench confirmed the judgment of

the learned Single Judge in O.P. No.10222 of 1991 dated

7.1.1998.

The brief facts of the case are as follows:

The respondent joined service in the Bank of Cochin (the

Bank has since been amalgamated with the State Bank of India

w.e.f. 27.4.85) on 1.11.1996 and was promoted as an officer

and then as Manager of the Madras Branch of the Bank of

Cochin. The disciplinary action initiated against him

related to 1977-1981 when he was working as Manager at

Madras. On 25.8.81, he was transferred to Calcutta. He

received letters of commendation dated 10.3.83 and 16.4.84

and his Branch at Calcutta stood at No.1 in the matter of

mobilisation of advances. It appears that some advances

given by him while working as Manager at Madras during

1977-1981 could not be recovered and hence on 4.2.84, he was

reposted at Madras for the purpose of recovering the

advances. The respondent made substantial recoveries after

his reposting in Madras but he was suspended on 13.7.1984

and served with a charge sheet on 18.9.1984 stating that he

had given advances unauthorisedly without discretionary

power/prior permission /observing lending norms and that his

actions amounted to `serious misconduct' which involved

financial loss and violation of Head Office prescriptions

with vested interest and causing wilful damage to the

interests and affairs of the Bank. The respondent denied

the charges in his reply dated 20.10.1984. A domestic

inquiry was held by appointing an Advocate as Inquiry

Officer. The respondent submitted his final explanation on

15.5.1985. On 3.8.1985 the Inquiry Officer submitted his

report. He held that the allegations under "items

1,5,7,8,9(A/c No. 20/79, 50/80, 62/80, 63/80, 64/80, 2/81,

37/81; 10,11,12(a,b), 13,14 (A/c 99, 137, 168, 183, 299,

405 & S. Item Nos. 554 & 518); 15,16,17(b), 18, 19, 20,

21, 22, 23 (a,b,g,i,k,m), 24 & 25(9)" were not proved. He

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further said that so far as the remaining items

2,3,4,6,9(A/c 18/81, MTL 1/80), 12,14(A/c 123, 199, 397 &

432), 17(a), 23(c,d,e,f,h,j,l,n) were concerned, the main

irregularity found was that there was no proper sanction or

ratification from the Head Office. (Item 25 is a summary of

the items).

He accepted by referring to the evidence of AW1 and AW2

(Inspectors of Branches) that there was a practice, in

certain Branches, of giving advances without sanction from

the Head Office (as seen from Exhibits B6, B10 to B15 of

Head Office) and in such cases subsequent ratification was

granted to such advances given without sanction. He stated

that Exhibits B18 to B22 were the letters of appreciation

received by the respondent from the Department to the effect

that his performance was `best'. He found, in favour of the

officer and in rejection of the language employed in the

charge- memo as follows:

"In the circumstances, no reasonable man

would be able to conclude that, in

connection with the said transactions,

Sri Paul acted with vested interest and

with the intention of causing wilful

damage and financial loss to the Bank.

He might have allowed the said

transactions with the good intention of

developing the business of the Bank and

also with a bonafide belief that the said

transactions would be ratified by the

Head Office in the normal course."

To the above extent, the finding is in favour of the

respondent.

He further concluded in favour of the respondent as

follows:

"My conclusion is that, in the light of

the evidence adduced before me, it would

be wrong to allege that Sri Paul had any

intention to cause wilful damage or

financial loss to the Bank as regards the

said transactions."

Having held in favour of the respondent as stated above,

the Inquiry Officer however gave a finding of gross

negligence against the respondent in the matter of not

obtaining sufficient securities, as follows:

"As regards the transactions mentioned as

items 23(d,f,h,j,n) in Ext. A3, it has

been stated that Sri Paul has failed to

take sufficient security for the said

transactions. In this regard, there is

gross negligence on the part of Sri Paul

and he has acted in violation of the Head

Office instructions."

He then referred to item 25 which related to 19 advances

(the 9th party was given loan not during the tenure of the

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respondent) and said that Mr.Paul was transferred from

Calcutta to Madras in February 1984 to enable him to recover

the advances he had given earlier during 1977-1981 and that

if he were not suspended in July 1984, he would have

recovered `substantial' amounts. The Inquiry Officer in

that connection observed as follows:

"If Sri Paul had not been suspended

abruptly, he would have been able to

persuade the parties concerned to remit

more amounts. After having deprived(him)

of such an opportunity, it would be

unjust to throw the entire blame on Sri

Paul as regards the outstandings in

question."

On these findings, the Disciplinary authority issued a

second notice on 22.1.1986 proposing `dismissal without

notice'. The said letter stated that the Inquiry Officer

had held charges 23(d,f,h,g,n) proved and held him guilty of

`gross negligence' and also guilty of `violation of the Head

office instructions'. The disciplinary authority then said

that having regard to the report, evidence and defences and

the gravity of charges proved, and the fact that his actions

had jeopardised the Bank's interests, he was proposing to

impose the punishment of `dismissal without notice. The

respondent submitted his reply to the above proposal on

18.2.1986. Thereafter, the disciplinary authority passed

orders of `dismissal from service without notice'on

20.3.1986.

The appellate authority modified the said order on

30.7.87 from dismissal without notice to removal. It is

necessary to refer to it in some detail. The appellate

authority initially observed:

"Though, allegations of malafides,

corrupt practices etc. were absent in the

charge sheet served on the appelant...."

He, however, stated that the respondent had exceeded his

powers while sanctioning advances and acted without

restraint thereby jeopardising the Bank's interest. He did

not obtain prior approval/sanction/ratification of Head

office. The unauthorised advances were upto Rs.44.71 lakhs

and resulted in substantial loss of Rs.16 lakhs. The

appellate authority then accepted the practice of

instructions of Head Office as follows:

"It may be true that the Managers of the

Bank of Cochin branches were given oral

orders/instructions for disbursement of

loans by the Head Office functionaries."

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but observed that such advances sanctioned under oral

orders/instructions should be got ratified/approved and

failure to do so could be cause of disciplinary action. It

was observed that the respondent could not rely on the

practice in Bank of Cochin. He had acted against the Head

Office instructions. The absence of seeking sanction raised

`doubts on his plea of bonafide action'. The appellate

authority admitted that the respondent was posted back at

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Madras for effecting recoveries. He also referred to an

order of a lesser punishment passed by the then Chairman,

Bank of Cochin(reduction in rank) which was not communicated

to the officer. This was not given effect to by the Bank of

Cochin as the Bank came under moratorium and the order had

no validity. He said that no doubt, the respondent had

received certificates of appreciation earlier for his good

work, but these letters would not mitigate the magnitude of

the lapses because the evidence proved `gross negligence and

actions in violation of Head Office instructions'. The

appellate authority observed:

"It may be true that in the interests of

giving speedy financial assistance to

important and deserving borrowers, the

Managers in Bank of Cochin were sometimes

given oral instructions by Head Office

functionaries."

but this will not help in view of Bank's instructions dated

11.4.1978 against such loans for which ratification was not

obtained. Nor was there proof of oral instructions. As the

officer was one whose `integrity' was not in doubt and he

was relatively young, it was a fit case for modifying the

order of `dismissal' into one of `removal from service' in

terms of Rule 49(g) of State Bank of India (Supervisory

Staff) Rules. Removal was to take effect from date of

dismissal.

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The above orders were questioned in writ petition. The

learned Single Judge while allowing the writ petition held

that the finding of the inquiry officer on item 23 was that

no financial loss was proved and if it was a case of not

taking adequate `security' from the loaners and in not

obtaining ratification as per Head office instructions,

these charges were not sufficient - in view of Rule

22(vi)(c) and (d) read with sub- rule (vii) - for imposing a

penalty of dismissal or removal. Only a minor penalty could

be imposed. As per inquiry Officer's report there was no

actual loss caused by reason of any act of the employee

wilfully done. There was no evidence of financial loss

adduced before the Inquiry Officer. The finding that the

respondent jeopardised Bank's interest was based on no

evidence. Penalty must have been only for minor misconduct.

The SBI Rules were not applicable since misconduct alleged

related to the period of service in the Bank of Cochin. The

learned Judge observed that `punishment of removal' could

not have been imposed as it was not one of the enumerated

punishments under Bank of Cochin Rules.

The writ petition was allowed, the impugned order was

quashed. It was, however, observed that the Bank could

impose punishment for minor misconduct as per Rules of Bank

of Cochin. The Writ Appeal preferred by the State Bank of

India was dismissed for the same reasons and the respondent

was directed to be reinstated with backwages, promotion and

all other monetary benefits like salary, increments, etc.

The Bank could impose penalty for minor misconduct.

It is against this judgment that this appeal has been

preferred by the State Bank of India. In this appeal we

have heard the submissions of learned senior counsel for the

Bank, Sri T.R. Andhyarujina and of learned senior counsel

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for the respondent, Sri P.P. Rao.

We shall first refer to the Rules which are applicable

to the facts of the case and regarding the applicability of

which there is no dispute. These are contained in the Bank

of Cochin Service Code. Chapter VII deals with Discipline

and Disciplinary action. Para 22 (iv) defines `gross-

misconduct'. We shall refer to the relevant sub- clauses

(h) and (l). They read as follows:

"Para 22(iv): By the expression `gross

misconduct' shall be meant any of the

following acts and of omission on the

part of an employee:

(a) to (g)...............................

(h) wilful insubordination or

disobedience of any lawful and reasonable

order ofthe Management/or of a superior

(i) to (k)..............................

(l) doing any act prejudicial to the

interests of the bank, or gross

negligence or negligence involving or

likely to involve the Bank in serious

loss."

As to the punishments for `gross misconduct', they are

enumerated in para 22(v) and read as follows:

"Para 22(v): an employee found guilty of

gross misconduct may:

(a) be dismissed without notice, or

(b) be warned or censured, or have an

adverse remark entered against him, or

(c) be fined, or

(d) have his increment stopped/basic

pay reduced, or

(e) have his misconduct condoned and be

merely discharged from service."

It is also necessary to refer to the definition of

`minor misconduct' in para 22(vi) and the punishments

therefor in para (vii). They read as follows to the extent

relevant for the case.

"Para 22(vi): In the expression9n `minor

misconduct' shall be meant any of the

following acts and omissions on the part

of an employee:

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

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

(c) neglect of work, negligence in

performing duties;

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(d) breach of any rule of business of

the Bank or instruction for running of

any department;

(e) to (j) ..............................

(k) the employee, especially an

officer, acting on oral or telephonic

instructions from the Chief Executive

Officer or other officers should get the

same confirmed in writing the same day or

the day next. The employee will be

estopped from making the plea of oral

instructions for his acts which have not

been confirmed.

(l) every employee shall be deemed to

have the knowledge of all the rules,

regulations, direction, and instructions

issued by the bank from time to time, for

transacting any business of the bank, and

for administration of the bank, and in

particular he shall be deemed to have

complete knowledge of the memorandum of

Instructions of the bank and all

amendments thereto issued from time to

time, the usual safeguard and precautions

to be taken with regard to bank's advance

and custody of securities, rules of

documentation and maintenance of

customers accounts etc. and shall

strictly confirm to and abide by such

rules, regulations, procedure,

directions, and instructions including

the provisions of this Code.

(m) ...................................

(n) ................................"

Para 22(vii) enumerates the punishments for minor

misconduct as follows:

"Para 22(vii): An employee found guilty

of minor misconduct may:

(a) be warned or censured; or

(b) have an adverse remark entered

against him; or

(c) have his increment stopped for a

period not longer than six months; or

(d) have his misconduct condoned."

It will, in our opinion, be sufficient to consider the

case in the light of the order of the appellate authority

but at the same time keeping the observations of the Inquiry

Officer and the Disciplinary authority in mind.

The appellate authority held that `allegations of

malafides, corrupt practices etc. were absent but that the

respondent "exceeded his powers while sanctioning advances

and acted without restraint thereby jeopardising the Bank's

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interest, that even if oral instructions were given they

should be got ratified. Hence respondent could not rely on

the practice in Bank of Cochin. The absence of seeking

sanction raised a doubt about his bonafides. His actions

were contrary to Bank's instructions dated 11.4.1978. There

was no proof of oral instructions of Head Office. The

Officer did not obtain prior approval/sanction/ratification

of the Head office. The unauthorised advances upto Rs.44.7

lakhs resulted in substantial loss upto Rs.16 lakhs. The

good certificates obtained did not mitigate the magnitude of

the lapses and the evidence proved `grossed negligence and

actions in violation of Head office instructions'. But the

respondent's integrity was not in doubt.

Learned senior counsel for the appellant, Sri

T.R.Andhyarujina contended that proof of serious loss is not

necessary and likelihood of loss is sufficient and this

aspect was ignored by the High Court.

On the other hand, learned senior counsel for respondent

Sri P.P.Rao contended that the inquiry officer did not give

any finding of serious financial loss.

Taking up the definition of `gross misconduct' in para

22(iv), it is obvious that clause (h) does not apply because

the charge is not one of insubordination or disobedience of

specific orders of any superior officer. Coming to clause

(l) of para 22(iv), the doing of any act prejudicial to the

interests of the bank, or gross negligence or negligence

involving or likely to involve the Bank in serious loss is

gross misconduct. In other words likelihood of serious loss

coupled with negligence is sufficient to bring the case

within gross misconduct. The Inquiry Officer's finding of

`gross misconduct' on the ground of not obtaining adequate

security is, therefore, correct and cannot be said to be

based on no evidence as held by the High Court. This can be

contrasted with para 22(vi)(c) under minor misconduct which

deals with `neglect of work and negligence in performing of

duties'. In our view, the contention of the learned senior

counsel for the appellants Sri T.R.Andhyarujina is,

therefore, entitled to be accepted.

The contention of the learned senior counsel for the

respondent ignores the fact that `gross negligence or

negligence likely to involve the Bank in serious loss' would

come under major misconduct within para 22(iv)(l). As

stated above, even assuming that there is no gross

negligence, simple negligence will come under major

misconduct if accompanied by `likelihood' of serious loss

and this is clear from para 22(iv)(l). Hence the finding of

the Inquiry Officer regarding gross misconduct is correct

and could not have been set aside by the High Court. The

findings of the Inquiry Officer clearly bring the case under

`major misconduct'. As held in Disciplinary Authority-

cum-Regional Manager vs. Nikunja Bihari Patnaik [1996 (9)

SCC 69], proof of loss is not necessary.

We are, therefore, of the view that the High Court was

not correct in holding that the findings of the Inquiry

Officer or of the disciplinary or appellate authorities did

not justify a finding of `major misconduct' on the basis of

para 22(iv)(a)(l).

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But this does not conclude the matter. The learned

senior counsel for the respondent Sri P.P. Rao is right in

contending that the appellate authority, once it came to the

conclusion that the punishment of dismissal was not

warranted in the facts of the case, it could not have

awarded the punishment of `removal' which was not one of the

enumerated penalties under para 22(v) of the Rules. In

fact, the learned Single Judge also adverted to this aspect.

If one reads the order of the appellate authority, it is

clear that the said authority went by Rule 49(g) of the

State Bank of India (Supervising Staff) Service Rules which

admittedly, is not applicable to charges pertaining to the

period 1977-1981 when the Rules of Cochin Bank applied. The

amalgamation of the Bank of Cochin with the State Bank of

India took place only on 27.4.85. It may be that the Rules

of the State Bank of India provided for a punishment of

removal, but in the Rules relating to penalties for `major

misconduct' in para 22(v) of the Rules applicable to the

employees of the Bank of Cochin, removal is not one of the

enumerated punishments which could be imposed. The said

punishment is not the same thing as "condoning misconduct

and merely discharging from service" as provided in para

22(v)(e) of the said Rules.

Learned senior counsel for the appellants Sri

T.R.Andhyarujina tried to submit that if the appellate

authority decided not to dismiss the respondent, it still

had inherent power to award a punishment of `removal', which

was lesser in severity. Learned senior counsel contended

that the discretion of the authorities to award such an

appropriate punishment could not be interfered with in view

of the decision of this court in Union of India vs.

Ganayutham [1997 (7) SCC 463]. In our view, this decision

is not applicable to the facts of the case. Here the Court

is not interfering with the punishment awarded by the

employer on the ground that in the opinion of the Court the

punishment awarded is disproportionate to the gravity of the

misconduct. Here, the gradation of the punishments has been

fixed by the rules themselves, namely, the Rules of the Bank

of Cochin and the Court is merely insisting that the

authority is confined to the limits of its discretion as

restricted by the Rules. Inasmuch as the Rules of the Bank

of Cochin have enumerated and listed out the punishments for

`major misconduct', we are of the view that the punishment

of `removal' could not have been imposed by the appellate

authority and all that was permissible for the Bank was to

confine itself to one or the other punishments for major

misconduct enumerated in para 22(v) of the rules, other than

dismissal without notice. This conclusion of ours also

requires the setting aside of the punishment of `removal'

that was awarded by the appellate authority. Now the other

punishments enumerated under para 22(v) are `warning or

censure or adverse remark being entered; or fine; or

stoppage of increments/reduction of basic pay or to condone

the misconduct and merely discharge from service. The

setting aside of the removal by the High Court and the

relief of consequential benefits is thus sustained. The

matter has, therefore, to go back to the appellate authority

for considering imposition of one of the other punishment in

para 22(v) other than dismissal without notice.

In the result the setting aside of the order of

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`removal' as done by the High Court is sustained and the

directions to pay him the backwages, grant such promotions

and monetary benefits by way of salary, promotion,

increments, etc. as granted by the High Court will also

remain. There will, however, be a modification of the

orders of the learned Single Judge and of the Division Bench

to the extent, namely, that the matter will go back to the

appellate authority for considering which of the punishments

other than `dismissal without notice' under para 22(v) could

be imposed on the respondent. We direct accordingly. The

benefits above referred to as directed by the High Court

shall be computed and paid to the respondent in accordance

with the relevant rules within 3 months from the date of

receipt of a copy of this order.

The appeal is partly allowed to the extent indicated

above. There will be no order as to costs.