State Bank Of India And Ors vs K.P. Subbaiah And Ors

Supreme Court16 July 2003Shivaraj V. Patil · Arijit Pasayat

SCC(2003) 11 SCC 646
Neutral2003 INSC 315
AIRAIR 2003 SC 3016
SCR[2003] Supp (1) SCR 545

Ratio decidendi

The rule this decision rests on

When Government of India policy provides for the protection of pay upon re-employment of ex-servicemen in public sector banks, the protection extends to the total emoluments (basic pay plus dearness allowance) last drawn by the ex-serviceman in the Armed Forces, not to any particular pay scale. Upon subsequent revision of pay scales with retrospective effect, the proper method of re-fixation is by reference to the protection of pay last drawn in the Armed Forces, not by fitting the employee into a corresponding stage in a new pay scale and thereafter claiming the benefits of that scale; the fixation of an initial pay scale at the time of employment was incidental to ensuring compliance with the pay protection policy and did not create a right to a corresponding scale in a subsequently revised pay structure. A bank may correct an initial error in pay fixation by re-fixing pay under a revised pay scale structure to give effect to the statutory protection of pay, even if that re-fixation occurs after the employee has received higher amounts from an incorrect fitment, provided that the re-fixed total emoluments (basic pay plus protected allowances) do not fall below the total emoluments to which the employee was entitled when entering service.

Written by Miss Lucy from the judgment below, not taken from a headnote.

Judgment

As delivered

CASE NO.:Appeal (civil) 4312-4317 of 1998

PETITIONER:State Bank of India and Ors.

RESPONDENT:Vs.

K.P. Subbaiah and Ors.

DATE OF JUDGMENT: 16/07/2003

BENCH:SHIVARAJ V. PATIL & ARIJIT PASAYAT

JUDGMENT:

J U D G M E N T

WITH

CIVIL APPEAL NOS. 4621-24 OF 2003

(Arising out of SLP(C) Nos.15808-15811/1998)

WITH

CIVIL APPEAL NOS.4625-26 OF 2003

(Arising out of SLP(C) Nos.2998-2999/1999)

ARIJIT PASAYAT, J

Leave granted in SLP (C) Nos.15808-15811/98 and 2998-

2999/99.

These appeals have their base on a judgment of the High

Court of Karnataka at Bangalore disposing of writ petitions

Nos.3426-27/1986 and writ petition Nos. 6432-35/1987.

The background scenario in which the present dispute

appears, lies within a very narrow factual compass. Six

persons who are the respondents in the appeal Nos. 4312-

4317/98 (hereinafter referred to as 'the employees') were

ex-servicemen in the Indian Army. They are appellants in

the other appeals. After discharge from Army service they

were employed by the State Bank of India (in short 'the

Bank'). They were discharged from defence services during

the period from 1.4.1982 to 1.9.1984 and joined the Bank on

different dates during the period from 11.8.1983 to

7.6.1984. In terms of the Government of India's policy, the

basic pay and the dearness allowance last drawn by them

while in military service was to be protected while fixing

their pay on absorption into public sector banks. During the

period when the employees joined the bank, the pay and

allowances payable to employees of the Bank were governed by

the Third Bipartite Settlement which was operative from

1.9.1978. Having regard to the Government's policy and as

per the decision of the Indian Banks Association (in short

'the Association'), all public sector banks followed the

norms in the matter of fixation of pay as per the Third

Bipartite Settlement. The Fourth Bipartite Settlement became

retrospectively operative from 1.7.1983. Under the said

settlement, there is an upward revision in the pay scales

and the basic pay of the employees were revised on stage to

stage basis. The annual increments were also given to the

concerned employees. When the matters stood thus, the Bank

issued a Circular dated 12.10.1985 regarding fixation of pay

relating to ex-servicemen employed in the public sector

banks. This was the starting point of controversy. By Staff

Circular dated 24.11.1986, the Bank notified that while

dearness allowance and interim relief drawn by ex-servicemen

shall qualify for protection as components of D.A., the

other allowances like city compensatory allowance and H.R.A.

did not qualify for such protection. Eleven types of

emoluments admissible in defence services were to be

protected on re-employment in the Bank. On the basis of the

aforesaid Circulars dated 12.10.1985 and 24.11.1986 the pay

last drawn by the employees stood reduced. This reduction

was challenged by the employees before the High Court.

Following questions were formulated by the High Court for

consideration.

"(i) When the IV Bipartite Settlement was

signed on 17.9.1984 bringing into force new

scales of pay, with retrospective effect

from 1.7.1983, what was the proper course to

be adopted by the Bank, in the case of

petitioners (who were appointed between

1.7.1983 and 17.9.1984):-

(a) whether the pay of

petitioners had to be revised by

fitment in the new scales of pay,

on a stage to stage basis, with

reference to the pay fixed under

the III Bipartite Settlement,

retrospectively from the date of

petitioners entering with service

(as contended by the petitioners);

(b) Whether a fresh fitment

in the new pay scales (under IV

Bipartite Settlement) should have

been effected to protect the pay

and allowances last drawn when in

Defence Service, in place of the

earlier fitment in the old pay

scales under the III Bipartite

Settlement (as contended by the

Bank).

(ii) If the revision of pay of petitioners,

by fitment in the new scales of pay, on

stage to stage basis, was contrary to the

scheme under which petitioners were

appointed, whether the Bank could

subsequently rectify the error by re-

fixation of pay of petitioners, by fitment

in the new pay scales (under IV Bipartite

Settlement) with reference to the last pay

drawn in Defence Service.

(iii) Whether by resorting to such

refixation the Bank can reduce the salary of

the petitioners to a level which is less

than the salary at which they were appointed

when they joined the services of the Bank

even though the refixed salary protects the

last pay drawn while in Defence service."

On consideration of rival stands, the High Court

observed that Part (a) of first question was to be answered

in the negative while part (b) of the said question was to

be answered in the affirmative. Question No.(ii) was to be

answered in the affirmative; question No.(iii) in the

negative and finally it was concluded that the Bank's

Circulars dated 12.10.1985 and 24.11.1986 were upheld

subject to conclusions at paragraph 23(d) of the judgment.

The memos prepared by the Bank revising the pay at the time

of entry of the employees in the banks were quashed. It was

declared that the Bank was entitled to correct the mistake

committed by them in revising the pay of the employees by

fitment in the new pay scales under IV Bipartite Settlement

on stage to stage basis and were also entitled to re-fix the

pay and D.A. on the basis of their entry into service with

reference to the new pay scales under the IV Bipartite

Settlement. But while doing so, the total pay packet of the

employees should not be less than the total pay fixed when

the employees entered the service of the Bank. In other

words, the total pay fixed by the Bank when the employees

entered its service should be protected. Consequently, while

re-fixing the pay and allowances payable to the employees as

on the date of entry into service under Circulars dated

12.10.1985 and 24.11.1986, the basic pay and D.A. of the

employees should not be less than Rs.1319.99, Rs.1596.12,

Rs.1380.50, Rs.1319.99, Rs.1582.61 and Rs.1582.61

respectively.

The relevance of these figures shall be dealt with a

little later.

It was further held that the employees were entitled to

further allowances on the basis of re-fixation subject to

the minimum mentioned above.

Mr. K.N. Raval, Learned Solicitor General appearing for

the appellants-Bank submitted that the conclusions of the

High Court are erroneous because it proceeded on the basis

as if a scale of pay was to be protected not the pay in

terms of the policy decision. A bare reading of the relevant

circular of the Government of India makes the position

crystal clear that the protection was of the pay. It

obviously meant that the employees were not to receive any

amount below the last pay drawn by them. It had nothing to

do with any scale of pay. The anomaly has arisen because the

Fourth Bipartite Settlement was made retrospectively

operative. In order to protect the pay, fixation of a scale

was without an alternative. The employees cannot claim a

double advantage by seeking a corresponding increase in the

pay scale. Had the pay scale been in contemplation at the

time of fixing the salary structure, the basic pay could not

have been fixed at a higher figure and that would have

avoided the claim of a corresponding scale of pay. It was

submitted that if the High Court's view is accepted, it

would mean conferring double benefit on the employees which

was not a contemplated idea in protecting the pay.

Per contra, learned counsel appearing for the employees

submitted that fixation of pay and retrospective operation

of the Fourth Bipartite Settlement were within the choice of

the employer-Bank and employees had nothing to do with it.

By indicating a particular scale of pay at the time of

absorption, a right is conferred on the employee to get a

corresponding higher scale of pay as and when there is

revision of the scale of pay. Undisputedly, the employees

were fitted in a particular scale of pay and as a natural

corollary and consequence they were entitled to the

corresponding scale of pay in terms of the subsequent

Bipartite Settlement. He also submitted that the High Court

was not justified in denying certain benefits for which the

employees have filed appeals.

The rival contentions need careful consideration.

Though a plea had been taken by the employees that

unilateral revision of the scale of pay was violative of

principles of natural justice, the same was abandoned by

learned counsel for the employees during hearing of the

case. It was submitted that all the relevant materials were

placed before the High Court and, therefore, the issues

should be decided on merits.

It would be relevant to quote the Circular dated

12.10.1985, which, inter alia, reads as follows:

"....Fitment of salary in cases of the

ex-servicemen who joined the Bank's service

after the revision of pay scale in September

1978 is being done on the basis of the

protection of pay drawn by them prior to

their retirement. Pursuant thereto, ex-

servicemen employees who have joined the

Bank on or after 1.7.1983 i.e. the date from

which the wage revision of award staff in

terms of the Fourth Bipartite Settlement

came into effect retrospectively, but before

17.9.1984 (the date of settlement) have been

fitted in the old scale of pay, on the basis

of the protection of pay last drawn by them

in the Armed Forces prior to their

retirement.

(2) The question as to how their

salary should be re-fixed under the Fourth

Bipartite Settlement has been examined by

the Central Office in consultation with IBA.

According to IBA guidelines:

(a) The pay fixation in the

case of ex-servicemen, who joined

the Bank's service on or after

July 1, 1983 may be made on the

basis of protection of pay drawn

in the Armed Forces or at a stage

where the new basic pay plus

dearness allowance corresponds to

the basic pay plus dearness

allowance drawn by them in the

Armed Forces, whichever is

higher.

(b) In the cases of those

ex-servicemen who joined the Bank

between July 1, 1983 and

September 17, 1984 and were given

the fitment in the scale of pay

under the Third Bipartite

Settlement, they may be given re-

fixation in the above manner, but

if as a result of such re-

fixation, their salary (pay +

D.A.) is reduced, the recovery of

excess payment for the period

July 1, 1983 to September 17,

1984 be waived. Recoveries for

subsequent period will be made

where necessary in three to four

instalments.

3. It has been decided to accept the IBA

guidelines referred to above."

The effect of the Circulars dated 12.10.1985 and

24.11.1986 can be figuratively crystallized as follows:

Names Stage Effective date Basic Pay Permissible Total

Allowances

Employee A 14.6.1982 535/- 404.00 939.00

in W.P. 3426/1986 B 7.6.1984 545/- 774.99 1319.99

(K.P. Subbaiah) C 7.6.1984 875/- 498.75 1373.75

D 7.6.1984 615/- 350.55 965.55

_____________________________________________________________________________________________

Employee A 1.4.1982 700/- 625.60 1325.60

in W.P. 3427/1986 B 11.8.1983 705/- 891.12 1596.12

(M. Shamanna) C 11.8.1983 1125/- 528.75 1653.75

D 11.8.1983 930/- 437.10 1367.10

_____________________________________________________________________________________________

Employee A 1.6.1984 550/- 687.90 1237.90

in W.P. 6432/1987 B 22.5.1984 580/- 900.50 1380.50

(M. Meenakshi ) C 22.5.1984 930/- 530.00 1460.00

Sundaram D 22.5.1984 820/- 467.40 1287.40

_____________________________________________________________________________________________

Employee A 1.9.1984 520/- 655.40 1175.40

in W.P. 6433/1987 B 22.5.1984 545/- 774.99 1319.99

(K.Sakkarias) C 22.5.1984 875/- 498.75 1373.75

D 22.5.1984 775/- 441.75 1216.75

____________________________________________________________________________________________

Employee A 29.2.1984 595/- 736.30 1331.30

in W.P. 6434/1987 B 22.5.1984 620/- 962.61 1582.61

(S. Balasubramaniam) C 22.5.1984 990/- 564.30 1554.30

D 22.5.1984 875/- 498.75 1373.75

_____________________________________________________________________________________________

Employee A 1.9.1984 520/- 595.40 1115.40

in W.P. 6435/1987 B 22.5.1984 620/- 962.61 1582.61

(Kewal Kumar Vaid) C 22.5.1984 990/- 564.30 1554.30

D 22.5.1984 730/- 416.10 1146.10

_____________________________________________________________________________________________

Note (i) Stage 'A' refers to the Stage when the employees were discharged from military service.

(ii) Stage 'B' refers to the stage when the employees joined the service of the

Bank and pay was fixed as per the Third Bipartite Settlement

scales of pay.

(iii) Stage 'C' refers to the stage when the pay was revised on stage to stage

basis, as per the Fourth Bipartite Settlement, with retrospective

effect from 1.7.1983 (or in the case of employees from the date

of their entry into service) corresponding to the salary fixed

under the Third Bipartite Settlement.

(iv) Stage 'D' refers to the stage when pay and allowance was refixed by the

Bank in pursuance of its Circular dated 12.10.1985.

(v) While calculating permissible allowances, HRA, and CCA have

been omitted. Only DA, ADA, GCB and IR taken for Stage 'A' and

only DA taken for stages B, C and D.

There was some amount of controversy as to what was to

be protected. With reference to Government of India's letter

dated 28.1.1983 it was submitted by learned counsel for the

employees that dearness allowance was to be excluded. We,

however, notice that the stand was different before the High

Court which proceeded on the basis that the protection was

to be given in respect of the last pay drawn which was

inclusive of D.A. It is also relevant to take note of the

Association's letter dated 28.4.1982 in which a reference

has been made to Government of India, Ministry of Finance's

communication to the following effect:

"It has been decided that while fixing

the pay of ex-servicemen in nationalized

banks the basic pay plus D.A. last drawn by

them in the military service would be

protected and in this process their pension

upto Rs.125/- per month would be ignored.

The banks may now be advised to take

necessary action in this regard under

intimation to us."

One thing is clear from various documents based on record

that the intention as reflected in the policy of Government

of India was to protect the last pay drawn of the concerned

ex-servicemen in the armed forces.

Learned Solicitor General is, therefore, right in his

submission that the protection related to pay and not to a

scale of pay. Submission of learned counsel for the

employees that after having been fitted to a scale of pay

in force at the time of absorption as a natural corollary

and consequentially a corresponding scale of pay in the

subsequent settlement at first flush appears attractive.

But it does not stand closer scrutiny. The apparent

intention was to ensure that the ex-serviceman at the time

of employment in the public sector bank does not get an

amount as pay lesser than what he was drawing while in

defence service. Perforce a scale of pay was to be fixed.

It stands to logic that the employer while fixing pay has

to fix it at a level of pay which would ensure compliance

with the requirement that it is not less than the last pay

drawn. The scale of pay on the basis of Third Bipartite

Settlement applicable to clerical cadre was Rs.325-20-405-

25-455-30-545-35-580-40-660-45-750-50-800-60-1160. After

retrospective operation of the Fourth Bipartite Settlement,

the scale became Rs.520-30—580-35-685-45-820-55-930-60-

990-65-1055-70-1195-85-1280-95-1660.

Strictly speaking, there is no fitment to a particular

scale as contended by the employees. The fitment into a

particular scale has to be considered in the background of

the policy decision to ensure the payment of an amount not

less than the last pay drawn. In that sense, it cannot be

said that there was any fitment to a particular scale to

attract the corresponding scale of pay in terms of

subsequent settlement.

In Service jurisprudence the expressions 'pay' and 'Pay

scale' are conceptually different connotations. Pay is

essentially a consideration for the services rendered by an

employee and is the remuneration which is payable to him.

Remuneration is the recurring payment for services rendered

during the tenure of employment. Pay and salary are

necessarily not interchangeable concepts. Their meanings

vary depending upon the provisions providing for them.

As per Concise Oxford Dictionary 8th Edn. (1990), the

word 'pay' in its ordinary significance in relation to

service means "to give what is due for services done".

However, in the Service Jurisprudence, the expression 'pay'

has technical connotation of its own. Fundamental Rule 9(21)

throws some light on this aspect. The definition itself is

as follows:

"9(21)(a)- Pay means the amount drawn

monthly by a Government servant as-

(i) the pay, other than special

pay or pay granted in view of his

personal qualifications, which has

been sanctioned for a post held by

him substantively or in an

officiating capacity, or to which he

is entitled by reasons of his

position in a cadre, and

(ii) overseas pay, special pay and

personal pay, and

(iii) any other emoluments which

may be specially classed as pay by

the President."

There are different types of pay like substantive pay,

special pay, additional pay, personal pay and presumptive

pay.

Public services comprise of different grades and,

therefore, different pay scales are provided for different

grades. The pay of an employee is in that background fixed

with reference to a pay scale. This is necessary to be done

because the pay of an employee does not remain static.

It has to be noted that an employee starts with a

particular pay which is commonly known as initial pay and

the periodical increases obtained by him are commonly known

as increments. When the highest point is reached, the

concerned employee becomes entitled to what is known as

ceiling pay. It is, therefore, a graded upward revision.

The fixation of pay scales is essentially a function of

the executive. They are closely inter-linked with evaluation

of duties and responsibilities attached to the posts and the

pay scales are normally linked with conclusions arrived at

by expert bodies like the Pay Commission.

The degrees of skill, strain of work, experience

involved, training required, responsibility undertaken,

mental and physical requirements, disagreeableness of the

tasks, hazard attendant on work and fatigue involved are

some of the relevant factors which go into the process of

fixing the pay scale. [See Delhi Veterinary Association v.

Union of India and Ors. (1984 (3) SCC 1)]

As noted above, a pay scale has different stages

starting with initial pay and ending with ceiling pay. Each

stage in the scale is commonly referred to as basic pay. The

emoluments which an employee gets is not only the basic pay

at a particular stage, but also the additional amounts to

which he is entitled as allowances e.g. D.A. etc. Therefore,

when a question of pay protection comes, the basic feature

is that the fitment or fixation of pay in a particular scale

must be such as to ensure that the total emoluments are not

reduced.

Ordinarily, a pay structure is evolved keeping in mind

several factors, for example (i) method of recruitment, (ii)

level at which recruitment is made, (iii) the hierarchy of

service in a given cadre, (iv) minimum educational/technical

qualifications required, (v) avenue of promotion, (vi) the

nature of duties and responsibilities, (vii) the horizontal

and vertical relativities with similar jobs, (viii) public

dealings,(ix) satisfaction level, (x) employer's capacity to

pay etc. Such a carefully evolved pay structure ought not to

be ordinarily disturbed as it may upset the balance and

cause avoidable ripples in other cadres as well. [See

Secretary, Finance Department and Ors. v. West Bengal

Registration Service Association and Ors. (AIR 1992 SC

1203)]

The Government of India, Ministry of Finance,

Department of Economic Affairs (Banking Division) by its

letter dated 28.1.1983 had indicated what was to be

protected. It is clearly spelt out therefrom that for the

purpose of fixation of pay of ex-servicemen re-employed in

the public sector banks, protection was to be given to total

emoluments i.e. pay plus D.A. (instead of only pay) last

drawn by ex-servicemen before their retirement from the

Armed Forces. The initial guidelines were fixed by letter

dated 2.2.1980 and the Indian Banks Association Circular

dated 28.4.1982. The guidelines were partially modified by

letter dated 28.1.1983 and it was stipulated that pay

fixation in the case of ex-servicemen who joined service

after revision of pay scale in September 1978 will be on the

basis of protection of pay instead of pay plus D.A. drawn by

them prior to retirement. In other words, their pay fixation

will be in accordance with the office memorandum issued by

the Ministry of Finance, Department of Expenditure dated

25.11.1958, 16.1.1964 and 19.7.1978. The stress, as is

evident from various documents noted above, was on

protection of total emoluments received by the concerned

employee before retirement from the Armed Forces. The

obvious intention was to, as indicated supra, see that the

total emoluments do not fall below what was being received

by him as pay plus last D.A. in Armed Forces. The Office

memorandum dated 28.1.1983 is of considerable importance and

is quoted below:

F.No.2/8/78-SCT(B)

Government of India

Ministry of Finance

Department of Economic Affairs

(Banking division)

New Delhi, dated the 28th January, 1983

The Chairman & Mg. Director (20 Nationalised

Banks)

The Chairman, State Bank of India, Bombay.

The Mg. Directors: 7 subsidiaries of SBI

The Chief Officer, DPP. Reserve Bank of

India, Bombay

The Chairman & Mg. Director: IDBI/IROI/IFCI.

Subject:- Ex-servicemen re-employed in Public

Sector banks – fixation of pay.

___

Sir,

I am directed to invite reference to this

Department's letter of even number dated 2.2.1980

and the Indian Banks' Association's circular No.

PD/76/589/865 dated 28.4.1982 on the above

subject. These two letters to be read together

and accordingly for the purpose of fixation of

pay of ex-servicemen re-employed in the public

sector banks, protection was to be given to total

emoluments i.e. 'pay+DA' (instead of only pay)

last drawn by ex-servicemen before their

retirement from the Armed Forces.

2. In partial modification of the guidelines,

conveyed through the aforesaid letters, it has

been decided that :

(i) In respect of ex-servicemen, absorbed

in banks' service prior to September

1978, if no recoveries were made on

account of pension and pension

equivalent of gratuity in excess of

Rs.125/- p.m. such recovery may not be

made with retrospective effect.

However, in future the adjustment of

pension will be made in accordance

with the Department of Expenditure

O.M.No.18(34)-E.III(B)/57 dated

25.11.1958 (copy enclosed) read with

IBA's circular No.PD/76/589/865 dated

28.4.1982.

(ii) The pay fixation in the case of ex-

servicemen who joined Banks' service

after the revision of pay scales in

September, 78 will however be on the

basis of protection of "pay" (instead

of pay + DA) drawn by them prior to

retirement. In other words, their pay

fixation will be in accordance with

the following office memorandum issued

by the Ministry of Finance, Deptt. Of

Expenditure:

1. O.M. No.18(34)-E.III(B)/57 dated

25.11.1958.

2. O.M. No.7(34)-E.III/62 dated

16.1.1964.

3. O.M. No.5(14)-E.III(B)/77 dated

19.7.1978.

(Copies of these OMs are enclosed)

3. For the purpose of qualifying service,

necessary to avail of housing loan,

conveyance loan, etc. service rendered by

the ex-servicemen in defence forces may be

taken into account.

4. If certain number of years of service

are prescribed as a minimum eligibility

criteria for promotion from one cadre to

another, rules in this regard may be

suitably modified to give weightage to ex-

servicemen on the basis of their service in

the Defence Forces.

5. Receipt of this letter may please be

acknowledged and action taken reported to

this Department at an early date.

Hindi version of this letter will

follow.

Yours faithfully,

Sd/-

(Ahmad Fareed)

Under Secretary to the Government of

India."

There was no intention to protect any particular scale

of pay. That being the position, the demand of a

corresponding pay scale has no rational. The High Court was,

therefore, clearly in error in holding that the scale of pay

was the determinative factor. The direction that while re-

fixing the pay and D.A. the total pay fixed when the

petitioner entered into the bank's service has to be

protected within the corresponding scale of pay, cannot be

maintained and is indefensible.

Civil Appeal nos. 4312-4317 of 1998 are accordingly

allowed.

In the connected appeals filed by the employees,

challenge is to the observations of the High Court as noted

above. It could not be shown as to how they suffer from any

infirmity. We do not find anything wrong in the impugned

conclusions of the High Court challenged by the employees to

warrant interference. The appeals are dismissed. There shall

be no order as to costs in all the appeals.

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