judgement:
Appeal No. 390 of 1963.
Appeal by special leave from the award dated December 11, 1959, of the Industrial Tribunal, Assam at Gauhati in Reference No. 7 of 1959.
C.B. Agarwal, J.N. Hazarika and K.P. Gupta, for the appellants.
Sankar Bannerjee, P.K. Chatterjee, D.N. Gupta and B.N.Ghosh, for the respondents.
November 25, 1963.
The judgment of the Court was delivered by GAJENDRAGADKAR, J.
This appeal by special leave arises from an industrial dispute between the respondent, the Management of 11 Tea Estates and the appellants, their workmen.
It appears that the appellants raised a dispute against the respondent in regard to the lay off declared by them in the 11 550 estates in question in February, 1959.
The said (ay off lasted for 45 days and the appellants ' contention was that the lay off was not justified, and so, they were entitled to their full wages for the period of the lay off.
The respondent 's Managing Agents for the nine Companies that run the 11 tea estates in question, resisted this claim on the ground that the lay off was justified and they alleged that the appellants were not entitled to anything more than the compensation prescribed by section 25C of the (hereinafter called 'the Act ').
This dispute was referred to the adjudication of the Industrial Tribunal by the Governor of Assam under section 10(1)(d) of the Act.
The 11 tea estates which are concerned with this dispute were described in Appendix A to the order of reference.
It is common ground that these 11 tea estates ' are run by nine Companies and M/s. Macneill and Barry Ltd. are the Managing Agents of all these companies.
The case for the respondent was that the tea estates in question which are all situated in Cachar District had to face a long period of depression in trade by reason of the poor prices generally commanded by the tea produced by them.
In 1959, the management faced a very difficult financial position and it took the view that in the interests of the employees and its own business, it would be appropriate to lay off the workmen for a certain period in order to avoid closure of business.
The circumstances which caused financial depression were beyond the control of the management and lay off was, therefore, inevitable and fully justified.
On the other hand, the appellants urged that there were other tea estates in the district of Cachar which had to face similar problems; the labour costs incurred by the respondent were not higher than the corresponding costs incurred by the other tea estates, the burden of taxes was the same for all the tea estates in the district and the quality of the tea produced was relatively similar.
They contended that the difficulty which the respondent had to face 551 was partly the result of its mismanagement and neglect.
They pleaded that the workmen employed by the respondent had been promised continuous work throughout the year and the declaration of lay off for such a long period as 45 days exposed them to the risk of semi starvation.
The appellants also urged that depression in trade or financial difficulties which may be characterised as trade reasons did not justify the lay off under the relevant Standing Order, and so, they justified their claim for full wages during the period of the lay off.
The Tribunal has held that the relevant Standing Order No. 8 justified the lay off.
The trade reasons resulting from the depression in trade and financial liabilities arising therefrom fell within the scope of the Standing Order; it has also held that the last clause in the Standing Order which was general in terms could be relied upon by the respondent in support of its plea that the lay off was justified.
In the alternative, the Tribunal thought that even if the lay off was not justified by the relevant clause in the Standing Order, the respondent had a common law right to declare a lay off and this right was recognised by section 25C of the Act.
According to the Tribunal, section 25 C recognises this common law right and since it is a statutory provision, it over rides the relevant clause in the standing Order.
Having thus found that the lay off was justified, the Tribunal proceeded to examine the question as to whether the trade reasons on which the respondent relied had 'been proved.
It then considered the relevant documentary evidence bearing on the point and noticed some general features applicable to all the tea companies before it.
"They have suffered losses which are by no means inconsiderable", said the Tribunal, "and some of the companies have not been able to declare dividends in time during the last ten years, though others have declared them from year to year.
" The Tribunal rejected the respondent 's contention that the losses were due to high labour charges, but it found that the tea companies were not making adequate profits.
It was satisfied that 552 the companies had reserves and large capital assets and would not have found it difficult to raise necessary finances.
On the whole, the Tribunal thought it necessary to distinguish between the different tea estates with which it was dealing, and having considered their respective individual cases, it came to the conclusion that out of the nine companies, five companies need not have declared lay off for 45 days.
In its opinion, there was justification for lay off in their cases, but its duration should have been 21 days.
Acting on this finding, the Tribunal has ordered that for the 24 days in excess of three weeks for which the lay off was justified the said companies should pay their workmen full wages and not merely the compensation prescribed by section 25C of the Act.
In regard to the remaining four companies, the Tribunal held that the lay off was fully justified, and so, the workmen were not entitled to full wages for the period of the lay off.
In other words, the award made by the Tribunal partially granted relief to the appellants inasmuch as it gave them full wages against five companies for 24 days only.
These five companies are: Bhubandhar, Doyapore, Western Cachar, Borak and Koyah.
The other four companies in respect of which the Tribunal has given no relief to the workmen are: Doodputlee ' Majagram, Scottpore and Tarrapore.
It is this award which has given rise to the present appeal by the appellants.
The first question which arises for our decision is whether the Tribunal was justified in holding that section 25C recognises the common law right of the respondent to declare a lay off for reasons other than those specified in the relevant clause of the Standing Order.
While dealing with this argument, we must proceed on the assumption that the financial difficulties experienced by the respondent at the relevant time which have been compendiously described by it as constituting trading reasons for the lay off do not fall within the purview of the said relevant clause.
The respondent 's argument is that though the trading reasons may not justify the declaration of the lay off 553 under the said clause, as prudent employers who must be given liberty to run their industry in the best manner they choose, they have a common law right to declare a lay off if they feel that the alternative to the lay, off would be closure and acting bonafide they want to avoid closure and adopt the lesser evil,, of declaring the lay off.
Does section 25C of the, Act justify this argument? Section 25C(1) which, recognises the right of the workmen who are laid; off, for compensation, provides that whenever a workman therein specified has been laid off, he shall be paid by the employer for whole of the period of the lay off, except for such weekly holidays as may intervene, compensation at the rate prescribed by the section.
The proviso to this section lays down that the compensation payable to a workman during any period of twelve months shall not be for more than; 45 days; and this proviso seems to indicate that the legislature thought that normally the period of lay off within 12 months may not exceed 45 days.
Section 25C(2), however, contemplates the possibility that the period of lay off may exceed 45 days, and it lays down that if during any period of 12 months, a work , man is laid off for more than 45 days, whether continuously or intermittently, he shall be paid compensation in the manner indicated by it.
Thus, the position is that workmen who are laid off are entitled to compensation and the method in which the said compensation has to be calculated has been prescribed by the two clauses of section 25C.
It is, however, significant that when section 25C deals with workmen who are laid off and proceeds to prescribe the manner in which compensation should be paid to them, it is inevitably referring to the lay off as defined by section 2(kkk) of the Act.
The said section defines a "lay off" (with its grammatical variations and cognate expressions) as meaning: "the failure, refusal, or inability of an employer on account of shortage of coal, power or raw materials or the accumulation of stocks or the breakdown of machinery or for any other reason 554 to give employment to a workman whose name is borne on the muster rolls of his industrial establishment and who has not been retrench ed.
" It would be legitimate to hold that lay off which primarily gives rise to a claim for compensation under section 25C must be a lay off as defined by section 2(kkk) If the relevant clauses in the Standing Orders of industrial employers make provisions for lay off and also prescribe the manner in which compensation should be paid to them for such lay off, perhaps the matter may be covered by the said relevant clauses; but if the relevant clause merely provides for circumstances under which lay off may be declared by the employer and a question arises as to how compensation has to be paid to the workmen thus laid off, section 25C can be invoked by workmen provided, of course, the lay off permitted by the Standing Order also satisfies the requirements of section 2(kkk).
Whether or not section 25C can be invoked by workmen who are laid off for reasons authorised by the relevant clause of the Standing Order applicable to them when such reasons do not fall under section 2(kkk), is a matter with which we are not directly concerned in the present appeal.
The question which we are concerned with at this stage is whether it can be said that section 25C recognises a common law right of the industrial employer to lay off his workmen.
This question must, in our opinion, be answered in the negative.
When the laying off of the workmen is referred to in section 25C, it is the laying off as defined by section 2(kkk), and so, workmen who can claim the benefit of section 25C must be workmen who are laid off and laid off for reasons contemplated by section 2(kkk); that is all that section 25C means.
If any case is not covered by the Standing Orders, it will necessarily be governed by the provisions of the Act, and lay off would be permissible only where one or the other of the factors mentioned by section 2(kkk) is present, and for such lay off compensation would be awarded under section 25C.
Therefore, we do not think that the Tribunal was right in holding that section 25C recognises the inherent right 555 of the employer to declare lay off for reasons which he may regard as sufficient or satisfactory in that behalf.
No such common law right can be spelt out from the provisions of section 25C.
That takes us to the question whether the lay off in the present case is justified under Rule 8 of the, Standing Orders which have been duly certified under ' the Industrial Employment (Standing Orders) Act, (No. 20 of 1946).
The relevant portion of Rule 8 reads thus: "Closing and re opening of sections of the in dustrial establishments, and temporary stoppages of work, and the rights and liabilities of the employer and workmen arising therefrom.
(a) (1) The Manager may at any time in the event of fire, catastrophe, break down of machinery, stoppage of power or supply, epidemic, civil commotion, strike, extreme climate conditions or other causes beyond his control, close down either the factory or field work or both without notice.
In cases where workmen are laid off for short periods on account of failure of plant or a temporary curtailment of production, the period of unemployment shall be treated as compulsory leave either with or without pay, as the case may be, when, however, workmen have to be laid off for an indefinitely long period, their services may be terminated after giving them due notice or pay in lieu thereof.
" It will be seen that the circumstances under which a lay off can be declared have been specifically described by Rule 8(a)(1).
Two grounds have been urged before us by Mr. Banerjee in support of the Tribunal 's conclusion that the impugned lay off is justified.
He contends that the clause "stoppage of supply" may cover cases of stoppage of financial assistance.
The argument is that in 1959 when the lay off was declared.
the companies found that they 556 could not raise enough money to carry on the operations in the tea gardens, and so, it was a case of stoppage of supply.
If that be so, the lay off would be justified.
In our opinion, this argument is wholly misconceived.
Stoppage of supply must, in the context, mean stoppage of raw material or other such thing.
In regard to the factory, the stoppage of supply may mean the stoppage of tea leaves, or in the case of field work, it may mean the stoppage of supply of other articles necessary for field operations.
It is impossible to accept the argument that "supply" in the context can mean money or funds.
The other argument urged before us is that the last clause of R. 8(a)(i) which refers to "other causes beyond his control" would take in the financial difficulties of the Cos.
We are not inclined to accept this argument also.
Other causes beyond his control for one thing should be similar to the causes that have preceded; even otherwise we see no justification for the argument that the financial difficulty which is alleged to have confronted the respondent was beyond its control.
In fact, on this point the Tribunal has made a definite finding that though the respondent had produced a letter from the Chartered Bank of the 9th April, 1959 in which the Bank expressed its re luctance to afford financial facilities, it was by no means clear that the Companies acting through their Managing Agents completely failed to raise the necessary finances at the relevant time.
As the Tribunal has observed, the letter written by the Bank shows that it had promised to consider the matter and write to the Companies again; no evidence was produced to show what the Bank subsequently stated and whether finances became available or not ' On the other hand, it is clear that at the end of the period of the lay off, all the Cos. started operating their tea gardens and we have been told that the operations have continued uninterrupted ever since.
Besides, the letter on which reliance is placed was written in April, 1959, whereas the lay off was declared in February, 1959.
Therefore, there is no evidence on the record which can justify 557 the assumption made by Mr. Banerjee when he raised the contention that the financial difficulties faced by the respondent at the relevant time were beyond its control.
The fact that some of the Cos. have been incurring losses and have not made profits would not necessarily show that the financial position which they had to face at the relevant time was beyond their control.
It is true, as Mr. Banerjee has pointed out, that the three Cos. Scottpore, Tarrapore and Doodputalee have not been able to pay dividends between 1951 to 1958 and it may be that with the exception of the year 1954, the position of all of them is not very satisfactory; but, on the other hand, there are other tea gardens in the same area and it is not suggested or shown that their position was any better than that of the companies before us.
It is also true that at the relevant time, all the tea companies in Cachar in general, and the Managing Agents of the nine companies before us in particular M/s. Macneill and Barry Ltd. were trying their best to persuade the Assam Government to give them some relief in the matter of taxation.
But the question which we have to decide is whether the financial position disclosed by the evidence on the record can be described as constitu ting a cause beyond the control of the respondent.
We are not inclined to answer this question in favour of the respondent.
Besides, as we have already indicated, having regard to the factors specified by Rule 8(a)(i) before the clause in regard to other causes beyond his control was introduced, it would not be easy to entertain the argument that a trading reason of the kind suggested by Mr. Banerjee can be included in that clause.
Therefore, we are satisfied that the Tribunal was in error in holding that the impugned lay off could be justified by Rule 8(a)(i).
Rule 8(a) (iii) which refers to temporary curtailment of production must obviously be read in the light of R. 8(a)(1) and if the case of the present lay off does not fall under R. 8 (a)(i), R. 8(a) (iii) would not improve the position.
Mr. Banerjee has then urged that the present Standing Orders which were duly certified under the 558 Standing Orders Act came into force in 1950, whereas section 2(kkk) which defines a lay off was added to the Act by the Amending Act 43 of 1953 on the 24 th October, 1953.
His argument is that the Standing Orders having been certified before the definition of the lay off was introduced in the Act, the respondent is entitled to rely upon the said definition in support r of the plea that the impugned lay off was justified.
Basing himself on the definition of the lay off as prescribed by section 2(kkk), Mr. Banerjee urged that this definition was wider than R. 8(a)(1) of the respondent 's Standing Orders and would take in the trading reasons on which he relies.
We are not prepared to accept the argument that in the present case, the respondent can rely on the definition of lay off as prescribed by section 2(kkk).
It will be recalled that the Standing Orders which have been certified under the Standing Orders Act became part of the statutory terms and conditions of service between the industrial employer and his employees.
Section 10(1) of the Standing Orders Act provides that the Standing Orders finally certified under this Act shall not, except on agreement between the employer and the workmen, be liable to modification until the expiry of six months from the date on which the Standing Orders or the last modification thereof came into operation.
If the Standing Orders thus become the part of the statutory terms and conditions of service, they will govern the relations between the parties unless, of course, it can be shown that any provision of the Act is inconsistent with the said Standing Orders.
In that case, it may be permissible to urge that the statutory provision contained in the Act should over ride the Standing Order which had been certified before the said statutory provision was enacted.
Assuming without deciding that section 2(kkk) may include the trading reasons as suggested by Mr. Banerjee, the definition prescribed by section 2(kkk) is not a part of the operative provisions of the Act, and so, the argument that there is inconsistency between the definition and the relevant Rule of the Standing Orders does not assist Mr. Banerjee 's case.
If there had been a provision in the Act specifically providing 559 that an employer would be entitled to lay off his workmen for the reasons prescribed by section 2(kkk), it might have been another matter.
The only provision on which reliance has been placed is contained in section 25C and that, as we have already seen, merely takes in the definition of lay off inasmuch as it refers to the workmen as laid off and provides the manner in which compensation would be paid to them.
An alleged conflict between the definition of lay off and the substantive rule of the Standing Orders would not, therefore, help the respondent to contend that the definition over rides the statutory conditions as to lay off included in the certified Standing Order.
Therefore, we do not think Mr. Banerjee would be entitled to contend that section 2(kkk) of the Act is wider than the relevant Rule in the Standing Orders and should apply to the facts of this case.
We ought to make it clear that in dealing with this argument, we have not thought it necessary to consider whether the broad and general construction of section 2(kkk) for which Mr. Banerjee contends is justified.
In fact, Mr. Agarwala for the appellants has very strongly urged that the words "for any reason" found in section 2(kkk) will not take in the trading considerations.
He contends and prima facie with some force that the said words must be construed ejusdem generis with the words that precede them.
(vide Management of Kairbetta Estate, Kotagiri vs Rajamanickam & Ors.)(1) According to him, the circumstances specified in section 2(kkk) which justify a lay off must be integrally connected with production, and so, trading reasons cannot be included in that definition.
According to this argument, the distinguishing features of the genus of which the several circumstances mentioned in the definition are different species, are: they are beyond the control of the employer, are expected to be of a short duration, and are of compulsive effect.
As we have already indicated, we do not think it necessary to decide this interesting point in the present appeal because we are satisfied that the present dis (1) ; 560 pute must be governed by Rule 8(a)(1) of the respondent 's Standing Orders.
In the result, we reverse the finding of the Tribunal that the lay off declared by the respondent for 45 days in 1959 was justified.
That being so, it is unnecessary to consider the individual cases of the nine respective companies, because whatever may have been their respective financial position, under the relevant Rule they could not validly declare a lay off at all, nor could they have declared the lay off in exercise of their alleged common law right.
The questions referred to the Tribunal must, therefore, be answered in favour of the appellants.
The appeal is accordingly allowed and the appellants ' claim for full wages for the 45 days of lay off in respect of the 11 tea gardens is awarded to them.
The appellants will be entitled to their costs throughout.
Appeal allowed.

summary:
As a result of the lay off declared by the respondent in the II tea estates, managed by them an industrial dispute arose between the respondent and their workmen, the appellant.
The respondent justified the lay off on the ground that its financial position was very difficult and that the lay off was appropriate in the interests of the employees and their own in order to avoid closure of business.
The appellants urged, inter alia, that the depression in trade or financial difficulties which may be characterised as trade reasons did not justify the lay off under the relevant Standing Order, and so, they justified their claim for full wages during the period of the lay off.
The Tribunal held that the relevant Standing Order No. 8 justified the lay off, and the trade reasons resulting from the depression in trade and financial liabilities arising therefrom fell within the scope of the Standing Order.
Alternatively, the Tribunal thought that even if the lay off was not justified by the relevant clause of the Standing Order, the respondent had a common law right to declare a lay off and this right was recognised by section 25C of the and since it is a statutory provision, it overrides the relevant clause in the Standing Order.
In appeal by special leave: Held: (i) The Tribunal was not right in holding that section 25C of the recognises the inherent right of the employer to declare lay off for reasons which he may regard as sufficient or satisfactory in that behalf.
No such common law right can be spelt out from the provisions of section 25C.
When the laying off of the workmen is referred to in section 25C, it is laying off as defined by section 2 (kkk), and so, workmen who can claim the benefit of section 25C must be workmen who are laid off for the reasons contemplated by section 2(kkk); that is all that section 25C means.
If in any case the lay off is not covered by the Standing Orders, it will necessarily be governed by the provisions of the Act, and lay off would be permissible only where one or the other of the factors mentioned by section 2(kkk) is present, and for such lay off compensation would be awarded under section 25C. 549 (ii) "Stoppage of supply" must, in the context, mean stoppage ' of raw material or other such thing.
In regard to the factory, "stoppage of supply" may mean the stoppage of tea leaves, or in the case of field work, it may mean the stoppage of supply of other articles necessary for field operations.
"Supply" in the context cannot mean money or funds.
(iii) The last clause of r. 8(a) (i) of the Standing Order which refers to "other causes beyond his control" would not take in the financial difficulties of the companies.
Other causes beyond his control for one thing should be similar to the causes that have preceded; even otherwise there is no justification for the argument that the financial difficulty which is alleged to have confronted the respondent was beyond its control.
Rule 8(a) (iii) which refers to temporary curtailment of production must obviously be read in the light of r. 8(a) (i) and if the case of the present lay off does not fall under r. 8(a) (i), r. 8(a)(iii) would not improve the position.
(iv) The present dispute must be governed by r. 8(a)(i) of the respondent 's Standing Orders.
It cannot be accepted that the Standing Orders having been certified before the definition of the lay off was introduced in the Act, the respondent is entitled to rely upon the said definition in support of the plea that the impugned lay off was justified.
Management of Kairbetta Estate, Kotagiri vs Raja manickam & Ors., ; , referred to.


judgement:
Appeals Nos.
909 to 923 of 1963.
Appeals from the judgment and orders dated July 26, and August 1, 1962, of the Calcutta High Court in Appeals from Original Orders Nos.
288 and 274 276, 278, 280, 279, 281, 273, 272, 271, 270, 269, 282 and 292 of 1961.
H.N. Sanyal, Solicitor General, S.J. Banaji, Prasanta Kumar Ghose and K.L. Hathi, for the appellants.
B. Sen, Salil Kumar Datta and Sukumar Ghose, for the respondents Nos. 1 to 5.
November 22, 1963.
The Judgment of the Court was delivered by GAJENDRAGADKAR, J.
This is a group of 15 appeals which raise a common question about the validity of the orders passed by the appellant Life Insurance Corporation of India terminating the services of its employees who are the respondents in these appeals.
The facts which give rise to the present disputes between the parties in all the 15 cases are substantially similar, and so, it would be enough if we state the relevant facts in one of these cases.
One of the respondents is Sunil Kumar Mukherjee.
He was in the insurance line since June, 1941 and had been confirmed in his service by the Metropolitan Insurance Co. Ltd. in March, 1950.
Since about 1953, he had been working as Inspector of the said Company, and since March 18, 1955, he was holding the appointment as Inspector at Barrackpore.
The appellant which took over the controlled business of the Metropolitan Insurance Co. Ltd., terminated the services of Mukherjee by an order passed on the 16th October, 1958.
The respondent then moved the Calcutta High Court under article 226 of the Constitution and prayed for a writ of certiorari or other appropriate writ or order quashing the said impugned 531 order of discharge passed against him.
Sinha J. who heard the writ petition allowed the petition and directed that a writ in the nature of certiorari quashing and/or setting aside the impugned order be issued.
A further writ in the nature of mandamus was also issued directing the respondents to the writ petition not to give effect to the said impugned order.
To the petition filed by the respondent, he had impleaded eight respondents, the principal amongst them being the appellant Corporation and the Union of India.
Aggrieved by the decision of Sinha J. the appellants preferred an appeal under the Letters Patent before a Division Bench of the said High Court.
Bose C.J. and Debabrata Mokerjee J. who heard the Letters Patent appeal substantially agreed with the view taken by Sinha J. and confirmed the order passed by him.
The appellants then applied for and obtained a certificate of fitness from the said High Court and it is with the said certificate that they have come to this Court in appeal.
On similar facts, the appellants have brought to this Court the other fourteen appeals, and a common question which has been raised by the learned Solicitor General on behalf of the appellants is that the High Court was in error in holding that the orders of discharge passed respectively against the respondents in these appeals were invalid.
Before dealing with the points raised by the appellants in the present appeals, it would be convenient to set out the relevant orders passed in respect of the appointment and discharge of the respondent Mr.Mukherjee.
When Mr.
Mukherjee was appointed a whole time Inspector by the Metropolitan Insurance Co. Ltd. on the 18th or 19th March, 1955, the terms and conditions of his employment were communicated to him by a document which contained 14 clauses (Annexure A to the W.P.).
Clause 13 of this document provided that the appointment was subject to termination without notice in case he was found guilty of fraud, misappropriation, breach of discipline, insubordination, acting detrimental to the interests of the company, disloyalty or gross neglect 532 of duty: provided, however, that he would be entitled to 30 days ' notice if his services were terminated for any other reason.
It is thus clear that under the terms and conditions of Mr. Mukherjee 's original appointment with the Insurance Co., he was liable to be dismissed for misconduct and was entitled to receive 30 days ' notice if his services were terminated for reasons other than misconduct.
When the Life Insurance Corpn.
took over the business of the Metropolitan Insurance Co. Ltd., an order was issued in favour of Mr. Mukherjee on the 14th February, 1958.
By this order it was stated that in terms of Government Order No. 53(1) I.S.N. (1) 57 dated 30th December, 1957, he was required to work as a Field Officer.
It was also added that he would continue to be attached to Barrackpore Branch Office until further orders.
This order was issued by the Divisional Manager.
Thus, it appears that after this order was given to Mr. Mukherjee, he began to work as a Field Cfficer by virtue of his appointment under the relevant Government Order.
One of the points which we have to consider in the present appeal is : what is the effect of this order of appointment? On the 16th October, 1958, the impugned order terminating Mr. Mukherjee 's services was passed.
This order said that in terms of section 5 of the Categorisation circular of the 2nd December, 1957, Mr. Mukherjee 's case was examined by the Special Committee appointed by the Board of the Corporation to review the cases of Ex Branch Secretaries etc., and it was added that in accordance with the recommendations of the Committee which had been accepted by the Corporation, it had been decided to terminate his services with immediate effect.
Mr. Mukherjee was also told that he would be paid his emoluments up to the current month and one month 's salary in lieu of notice.
It is the validity of this order which has been successfully challenged by Mr. Mukherjee before the Calcutta, High Court, and the learned Solicitor General contends that the High Court was in error in upholding Mr. Mukherjee 's plea.
533 The history of the nationalisation of the Life Insurance business in this country is well known.
On the 19th January, 1956, the Life Insurance (Emergency Provisions) Ordinance (No. 1 of 1956) was promulgated by the President for the purpose of taking over, in the public interest, the management of the life insurance business, pending nationalisation of such business.
In due course, Act No. 9 of 1956 was passed which took the place of the original Ordinance and it came into effect on the 21st March, 1956.
This Act was followed by Act 31 of 1956 (hereinafter called 'the Act ') which was published on the 1st of July, 1956.
The appointed date under s.3 of this Act was the 1st of September,1956.
Section 7 of the Act provides that on the appointed day there shall be transferred to and vested in the Corporation all the assets and liabilities appertaining to the controlled business of all insurers.
That is how the Life Insurance Corporation took over all the assets and liabilities appertaining to the controlled business of all the insurers in this country.
As a result of this taking over, section II proceeded to make a provision for the transfer of service of existing employees of insurers to the Corporation.
For the purpose of these appeals, it is necessary to set out sec.
11 (1) & (2).
These sub sections read as under: "(1) Every whole time employee of an insurer whose controlled business has been transferred to and vested in the Corporation and who was employed by the insurer wholly or mainly in connection with his controlled business immediately before the appointed day shall, on and from the appointed day, become an employee of the Corporation, and shall hold his office therein by the same tenure, at the same remuneration and upon the same terms and conditions and with the same rights and privileges as to pension and gratuity and other matters as he would have held the same on the appointed day 534 if this Act had not been passed, and shall continue to do so unless and until his em ployment in the Corporation is terminated or until his remuneration, terms and conditions are duly altered by the Corporation: Provided that nothing contained in this sub section shall apply to any such employee who has, by notice in writing given to the Central Government prior to the appointed day, intimated his intention of not becoming an employee of the Corporation.
(2) Where the Central Government is satisfied that for the purpose of securing uniformity in the scales of remuneration and the other terms and conditions of service applicable to employees of insurers whose controlled business has been transferred to,, and vested in, the Corporation, it is necessary so to do, or that, in the interests of the Corporation and its policy holders, a reduction in the remuneration payable, or a revision of the other terms arid conditions of service applicable, to employees or any class of them is called for, the Central Government may, notwithstanding any thing contained in sub section (1), or in the , or in any other law for the time being in force, or in any award, settlement or agreement for the time being in force, alter (whether by way of reduction or otherwise) the remuneration and the other terms & conditions of service to such extent and in such manner as it thinks fit, and if the alteration is not acceptable to any employee, the Corporation may terminate his employment by giving him compensation equivalent to three months ' remuneration unless the contract of service with such employee provides for a shorter notice of termination.
" 535 Then follow an explanation and sub sections (3) and (4) which are not relevant for our purpose.
It would thus be seen that under section 11(1), persons who were employed by an insurer wholly or mainly in, connection with his controlled business before the appointed day, became the employees of the Corpora , tion as from the appointed day.
After they thus became the employees of the Corporation, they held their offices by the same tenure, at the same remuneration and upon the same terms and conditions and with the same rights and privileges.
In other words, on the taking over of the controlled business by the Corporation, the employees of the insurers to whom section 11 (1) applied became the employees of the Corporation, but their employment continued to be on the same terms and conditions as before.
This state of affairs was to continue until the employment of the employee was brought to an end or until his remuneration, terms and conditions were duly altered by the Corporation.
The scheme of section 11(1) is thus clear.
With the transfer of the controlled 'business from the insurer to the Corporation, the employees of the former became the employees of the latter, but they were governed by the same terms and conditions until they were altered by the latter.
The proviso to section II (1) shows that if any employee had, by notice in writing, conveyed to the Central Government prior to the appointed day his intention not to become an employee of the Corporation, his case was outside section 11 (1) In other words, such an employee would not become the employee of the Corporation and his case would have to be dealt with apart from section II (1) & (2).
Section 11 (2) as it originally stood was substantially modified in 1957, and the plain effect of the provisions contained in the said sub section as modified, is that the Central Government.
is given the power to alter (whether by way of reduction or otherwise) the remuneration and the other terms and conditions of service to such extent and in such manner as it thinks fit.
It is significant that this power can 536 be exercised by the Central Government notwithstanding anything contained in sub section (1) or in the , or in any other law, or in any award, settlement or agreement for the time being in force.
It was thought that for a proper functioning of the Corporation it was essential to confer upon the Central Government an over riding power to change the terms and conditions of employees who were wholly or mainly employed by the insurers prior to the appointed day.
Having conferred such wide power on the Central Government, section 11 (2) further provides that if the alteration made by the Central Government in the terms and conditions of his service is not acceptable to any employee, the Corporation may terminate his employment by giving him compensation equivalent to three months ' remuneration unless the contract of service with such employee provides for a shorter notice of termination.
It is thus clear that in regard to cases which fall under section 11 (2) if as a result of the alteration made by the Central Government any employee does not want to work with the Corporation, he is given the option to leave its employment on payment of compensation provided by the last part of section 11 (2).
Thus, the scheme of the two sub sections of section II is clear.
The employees of the insurers whose controlled business has been taken over, become the employees of the Corporation, then their terms and conditions of service continue until they are altered by the Central Government, and if the alteration made by the Central Government is not acceptable to them, they are entitled to leave the employment of the Corporation on payment of compensation as provided by section 11(2).
After the Corporation took over the controlled business of insurers under the Act, two circulars were issued by the Managing Director, the first on the 30th September, 1957 and the second on the 2nd December, 1957.
These circulars need not detain us at this stage, because, by themselves, they were without any authority in law.
However, we would have occasion to refer to the second circular later on.
537 On the 30th December, 1957, an order was issued by the Central Government in exercise of the powers conferred on it by section 11(2) of the Act.
This order was issued on blue paper and has been described by the High Court as the 'blue order '.
We will refer to this order as 'the order ' in the course of this judgment.
This order was issued because the Central Government was satisfied that for the purpose of securing uniformity, in the scales of remuneration and the other terms and conditions of service applicable to certain classes of employees of insurers, it, was necessary to clarify the position by making specific and clear provisions in that behalf.
The object of the order was to secure the interests of the Corporation and its policy holders by making a reduction in the remuneration payable to the employees governed by the order, and effecting a revision of the other terms and conditions applicable to them.
This order was confined in its operation to the officers of the insurers who were known as 'Field Officers ', and so, the order was named as the Life Insurance Corporation Field Officers ' (Alteration of Remuneration and other Terms and Conditions of Service) Order, 1957.
It consists of 12 clauses.
Clause 2 defines, inter alia, a Field Officer.
In 1962, the designation 'Field Officer ' was changed into a "Development Officer", though curiously enough the title of the Order still refers to the Field Officer and does not incorporate a consequential amendment in the said designation.
The definition of the "Development Officer" shows that it takes in a person however he was designated before the appointed day if he was wholly or mainly engaged in the development of new life insurance business for the insurer by supervising, either directly or through one or more intermediaries, the work of persons procuring or soliciting new life insurance business, and who was remunerated by a regular monthly salary, and who has become an employee of the Corporation under section 11 of the Act.
This definition excludes certain categories of employees to which it is not necessary to refer.
It is thus clear that the Order was intended to prescribe the terms and conditions of service in respect of Development Officers who had become employees of the Corporation under section 11 (1) of the Act.
Clause 3 of the Order prescribes the duties of the Development Officer.
Clause 4 prohibits the Development Officers from engaging themselves in certain activities.
Clause 5 provides for the scales of pay and allowances .
Clause 6 deals with the matter of leave and retirement, and provides that in the matter of leave and retirement, Development Officers shall be governed by the Life Insurance Corporation (Staff) Regulations, 1960, as amended from time to time. ' Clause 7 provides for increments, and clause 8 deals with new business bonus, while clause 9 refers to promotion of Development Officers.
Clause 10 is relevant for our purpose and must be set out in full: "10.
Penalties and termination of service: (a) In case of unsatisfactory performance of duties by a Development Officer or if a Development Officer shows negligence in his work or is guilty of misconduct or is otherwise incapable of discharging his duties satisfactorily, his remuneration may be reduced or his services may be terminated, after giving him an opportunity of showing cause against the action proposed to be taken in regard to him and after conducting such enquiry as the Corporation thinks fit.
(b) The services of any Development Officer may, with the prior approval of the Chairman of the Corporation, be terminated without assigning any reason after giving the Development Officer three months ' notice thereof in writing.
" Clause 11 prescribes that the actual pay and allowances admissible to any Development Officer under the scale of pay specified in paragraph 5 shall be determined in accordance with such principles as may be laid down by the Corporation by regulations made in this behalf under sec.
49 of the Act.
The last clause lays down that if a doubt arises as to the interpretation of any of the provisions of the Order, the matter will be decided by the Central Government.
539 It is thus clear that in regard to the Field Officers subsequently designated as Development Officers who became the employees of the Corporation after the appointed day the Order provides a self contained with the material terms and conditions of service of the said Officers.
In regard to the scales of pay and.
allowances which have been prescribed by clause 5, clause 11 contemplates that the actual pay and allowances admissible to any Development Officer will have to be determined in accordance with the principles which the relevant regulation would in that behalf lay down, and so, in the matter of scales of pay and allowances clause 5 read with clause 11 has to be co related with the relevant regulation which had to be subsequently framed.
In regard to the other terms and conditions of service, however, the Order makes specific and clear provisions.
That being so, there can be no doubt that in regard to the Officers to whom the Order applies, if any action is intended to be taken for the termination of their services, it has to be taken under clause 10(a) or (b).
Clause 10 (a) deals with two alternatives; it empowers the appropriate authority to reduce the remuneration of the Development Officer or to terminate his services; in either case, an opportunity of showing cause against the action proposed to be taken has to be given to him, and an enquiry has to be conducted in the manner which the Corporation may think fit.
If the Development Officer shows negligence in his work, or is guilty of misconduct, or is otherwise incapable of discharging his duties satisfactorily, the Corporation may reduce his remuneration or may terminate his service ; but that can be done only after complying with the conditions prescribed by clause 10(a).
Clause 10(b) empowers the Corporation to terminate the services of the Development Officer without assigning any reason and without holding any enquiry or giving him an opportunity to show cause, provided, of course, the order terminating his services is passed with the prior approval of the Chairman of the Corporation.
is power can be exercised without complying 540 with clause 10(a) and is independent of it.
Thus, in the matter of penalties and termination of service, two alternative powers are conferred on the authority and they are contained in the sub clauses (a) and (b) of clause 10.
As envisaged by clause 11 of the Order, Regulations were framed in 1958 by the Life Insurance Corporation under section 49 of the Act read with clause 11 of the Order.
These Regulations contain five Clauses; the first gives the title of the Regulations; the 2nd defines the "Categorisation Order" which is the same as the blue Order, as well as the "Corporation" and the "Field Officer".
Regulation 3 deals with the conveyance allowance.
Regulation 4 provides for the manner of fixing the pay of the Development Officer.
Regulation 4 (1) lays down that the basic pay in the scale of pay prescribed for Field Officers by the Order shall be so fixed that the said pay together with the dearness allowance and conveyance allowance is not less than the total monthly remuneration to which the Officer was entitled before the 31st August, 1956.
Regulation 4(2) provides that where the work of the Field Officer has been either below or above the adequate standard, the Corporation may fix his basic pay at such stage in the scale as it may think fit.
Regulation 4(3) prescribes that in judging a Field Officer 's work, the Corporation shall observe the principles contained in the circular issued by the Managing Director on the 2nd December, 1957.
Regulation 5 provides for the computation of total monthly remuneration which was paid to the Officer on the 31st August, 1956.
It will be noticed that clause 4(3) of the Regulations makes the circular issued by the Managing Director on the 2nd December, 1957 a part of the regulation by treating it as its annexure and referring to its provisions for the purpose of determining the remuneration payable to the Development Officer.
That is how the said circular which, when it was issued, had no legal authority, has now become valid as a part of the Regulations issued by the Corporation under section 49 of the Act read with clause 11 of the Order.
541 This circular contains five paragraphs.
The object of the material provisions of this circular is to determine the quality of the work which the Development Officer puts in which would afford a basis for fixing his remuneration.
Paragraph 4 of this circular deals with the problem of fitting in the respective Development Officers in the pay scales provided by clause 5 of the Order.
It consists of eight clauses (a) to (h).
In the present appeals, we are concerned with the last of these clauses.
Paragraph 4, clause (h) reads thus: "If the actual performance is less than 50of the revised quota, the cases of such Field Officers will be referred to a Committee to be specially appointed in each Zone.
The Committee will go through the past records of such Field Officers and decide whether they could be continued as Field Officers either as Probationers or on substantially reduced remunerations.
In the case of those who cannot be continued as Field Officers, the Committee will examine whether any of them could be absorbed in administration and where this is possible, the Committee will fix the remuneration in accordance with the rules to be prescribed.
Where the Committee decides that the poor performance of a Field Officer was not due to circumstances beyond his control or that he has made no efforts and not shown inclination or willingness to work, ' the services of such Field Officers will be terminated.
" It is clear that paragraph 4(h) deals with the cases of persons whose actual performance is less than 50 % of the revised quota, and as such, who are re : garded as ineligible for fitting in the employment of the Corporation.
Their cases are required to be referred to the Committee specially appointed in each Zone, and on examining the record of these Officers, if the Committee comes to the conclusion that some of them cannot be continued as Field Officers it may enquire whether any of them could be absorbed 542 in administration, and if yes, their remuneration may be suitably fixed: if the Committee thought that the poor performance was not due to circumstances beyond his control, or that he made no efforts or showed no inclination or willingness to work, the services of such Field Officer will be terminated.
Paragraph 5 deals with the question of ex Branch Secretaries and Supervisory Officers, and it provides that if their work is found to be unsatisfactory, the Committee may recommend termination of the services of the officers concerned.
In other cases, the Committee will make recommendations as to whether they should continue such Inspectors as Field Officers and if yes, on what remuneration; or whether their services could be utilised in any other capacity in the Corporation, and if yes, on what remuneration? The learned Solicitor General has contended that when the Corporation took over the controlled business of insurers in this country on the appointed day, it was found that a large number of employees in the category of Field Officers were either incompetent or unwilling to work efficiently, and so, it was thought desirable, in the interests of the Corporation itself and in the interests of the policy holders, to terminate their services.
That is why a well devised scheme was framed by the circular and adopted in the Regulations laying down principles for determining the effi ciency of the work done by the said Officers.
He urges that by the application of ' the principle laid down by paragraph 4 (h) of the circular, it was competent to the Corporation to terminate the services of the respondents, and that is what in fact has been done in each of the cases before us.
In support ot this plea, he has relied on the fact that paragraph 4 (h) empowers the Corporation to terminate the services of incompetent officers and paragraph 5 also gives the same power in respect of ex Branch Secretaries and Supervisory Officers.
The argument is that where cases are dealt with under the provisions of paragraph 4 (h) or paragraph 5 of the circular, there can be no question of applying the provisions of clause 10 of the Order.
543 it is common ground that before terminating the services of the respective respondents in the group of appeals before us, no enquiry has been held and no opportunity has been given to the said officers as required by clause 10(a) of the Order.
It is also common ground that the impugned termination of their services has not been effected under clause 10(b) of the Order.
The respondents ' contention is that the termination of their services can be brought about only under clause 10(a) or 10(b) of the Order, and since it has not been so brought about, the impugned orders are invalid.
On the other hand, the learned Solicitor General contends that the power to terminate services conferred by paragraph 4 (h) of the circular is independent of clause 10 of the Order, and the same can be, and has been, validly exercised in the present cases.
In considering the validity of these rival contentions, it is necessary to bear in mind the true legal position about the character of the relevant statutory provisions.
It is plain that the provisions contained in section 11(2) of the Act are paramount and would override any contrary provisions contained in.
the Order or the Regulations.
Subject to the provisions of section 11(2), the provisions of ' the Order will prevail, because the Order has been issued by the Central Government by virtue of the powers conferred on it by section 11(2) itself The provisions of the Order in law partake of the character of the rules framed under section 48 of the Act.
Thus next to the provisions of section 11(2) of the Act will stand the provisions of the Order.
Then we have the Regulations issued by the Corporation under section 49(1) of the Act.
But it must be borne in mind that the power of the Corporation to make Regulations is burdened with the condition that these regulations must not be inconsistent with the Act and the rules framed thereunder, so that if any of the provisions contained in the Regulations made by the Corporation under section 49 are found to be inconsistent either with section 11( 2) or with the Order made by the Central Government under section 11(2), they would be 544 invalid.
It is in the light of this legal position that the problem posed before us in the present appeals must be decided.
We have already noticed that as soon as the Field Officers or the Development Officers became the employees of the Corporation on the appointed day under section 11 (1), they initially carried with them their original terms and conditions of service, and this state of affairs continued until the Order was issued on the 30th December, 1957.
As we, have already seen, the provisions of this Order provide for the terms and conditions of service in matters covered by the Order.
In regard to remuneration, the Order did not completely resolve the problem, but it left the determination of the scale of pay and allowances payable to each employee in the light of the Regulations which would be framed by the Corporation in pursuance of the authority conferred on it by clause 11 of the Order; but in regard to the termination of services of the employees, clause 10 has made a specific provision, and wherever the Corporation wants to terminate the services of any Development Officer, clause 10 has to be complied with.
It is true that paragraph 4(b) of the circular purports to say that in cases falling under the last part of the said paragraph, the services of the Field Officers will be terminated.
If the said portion of paragraph 4 (h) is interpreted to mean that it confers on the Corporation an authority to terminate the services of the Development Officer independently of clause 10 of the Order, it would be inconsistent with the said clause and would, therefore, be invalid.
We are, however, satisfied that the said portion of para 4 (h) really means that in cases falling under it, the services of the officers concerned would be liable to be terminated, and that means that the termination of the services of the said officers must be effected in the manner prescribed by clause 10 of the Order.
That is how paragraph 4(h) and clause 10 can be reasonably reconciled.
What we have said about para 4(h) is equally true about paragraph 5 of the circular.
545 in regard to the fixation of remuneration, however, the position is that clause 5 of the Order fixes the scales of pay and allowances and leaves it to the regulations to lay down the principles in the light of which each individual case should be judged.
It was, therefore, perfectly competent to the Corporation to adopt the circular issued by the Managing Director, and in consequence, lay down the principles which should be followed in fitting individual officers into the scheme prescribed by clause 5 of the Order.
But it is necessary to emphasise that the scope and purpose of fitting the officers obviously is to treat the officers as continuing to remain in the category of Development Officers and prescribe their remunerations accordingly.
The total amount of remuneration would undoubtedly be determined in the light of the principles prescribed by the circular, but under the guise of fitting in a particular officer in the light of the said principles it would not be open to the Corporation to demote the officer from the grade of Development Officer to a lower grade, that would be beyond the competence of the regulations.
All that the Regulations can purport to do is to lay down principles for fixing the actual pay and allowances admissible to the Development Officers.
That is the direction contained in clause II of the Order and it is within the limits of the said direction that the principles can be validly laid down by the Regulations.
After the remuneration is determined in the light of the principles laid down by the Regulations, if any officer is not inclined to accept the said altered remuneration, occasion may arise for the Corporation to exercise its power under section 11(2) of the Act and pay him compensation as therein contemplated.
That, however, is a matter with which we are not concerned in the present appeals.
What we are concerned with in the present appeals is the validity of the orders terminating the services of the officers on the ground that they are found to be incompetent.
If the officers were found to be incompetent in the light of the pro visions of paragraph 4(h) of the circular, their services could no doubt be terminated, but such termination of services must 1/SCI/64 35 546 conform to the requirements of clause 10(a) or (b) of the Order.
As we have already seen, it is common ground that the impugned orders terminating the services of the respective respondents have not been passed in accordance either with clause 10(a) or 10(b), and so, they must be held to be invalid.
It is true that in the present proceedings the respondents had claimed relief under article 311(2) of the Constitution and had in their writ petitions challenged the validity of the Order and the Regulations.
That, however, does not dis entitle the respondents from claiming the same relief on the alternative basis that though the Order and the Regulations may be valid, the impugned orders whereby their services have been terminated are invalid for the reason that they do not comply with clause 10 of the Order.
Therefore, we are satisfied that the learned Solicitor General is not justified in contending that the impugned orders can be sustained under paragraph 4(b) of the Circular which has been adopted by the Regulations as annexure thereto.
There is one more point which has yet to be examined.
In regard to the case of Haridas Roy who is the respondent in C.A.No. 917 of 1963, the learned Solicitor General has contended that the order terminating his services is valid either under para 4(h) of the circular or under section 11(2) of the Act.
Haridas Roy was originally employed by the Hindustan Co operative Insurance Society Ltd., before the appointed day as an Inspector of Agents.
After the Corporation took over the controlled business of the said Insurance Co., he was appointed as a Field Officer under the Order, and the order of his appointment was communicated to him on the 15th February, 1958.
It appears that on the 9th August, 1958, he was told that his case had been considered by the Zonal Committee and it had been decided to absorb him in the office as an Assistant on the emoluments mentioned in the order.
Haridas Roy declined to accept this assignment and stated that he wanted to continue as a Field Officer as before.
Thereupon, 547 his services were terminated by an order dated the 18th September, 1958.
In this letter, Roy was told that his case had been carefully considered by the Zonal Committee and he was offered ex gratia to be absorbed on the administrative side as an Assistant; since he refused to accept that assignment, his services were terminated on payment of one month 's salary in lieu of notice less deductions, if any.
This letter also told Roy that there were no extenuating circumstances in his case and his work was found to be of very poor quality.
It would be noticed that the Corporation presumably examined the performance of Roy in the light of the principles laid down by the relevant provisions in the circular and held that his case fell under the last part of paragraph 4(h) of the said circular.
That only means that having regard to his poor performance Roy became eligible to be dealt with under clause 10 of the Order.
It was not open to the Corporation to require Roy to accept an assignment in a lower or different category.
What the regulations are authorised to do is merely to determine his salary in the category of Development Officers, and so, we do not see how the order terminating his services because he refused to take an assignment as an Assistant can be justified.
It would have been open to the Corporation to fix Roy 's salary at the minimum in the grade prescribed by clause 5 of the Order and if he had refused to take it, an occasion may have arisen for the operation of section 11(2) of the Act.
Therefore, we are satisfied that the case of Roy cannot be distinguished from the cases of other respondents in the present group of appeals.
The result is, the orders passed by the High Court are confirmed, and the appeals are dismissed with costs.
One set of hearing fees.
Appeals dismissed.

dataset_name: IN-Abs

summary:
One of the respondents Mr. S.K. Mukherjee was an employee of the Metropolitan Insurance Co. Ltd., and had been working as an Inspector when the appellant took over the company There after, in February 1958, he was directed to work as a field officer.
By the order dated, October 16, 1958 his services were terminated with immediate effect and he was informed that he would be paid. his emoluments up to the current month and one month 's salary in lieu, of notice.
He was not given.
an opportunity to show cause against this termination.
His petition before the High Court under article 226 of the Constitution challenging the vatidity of this order was allowed by 'the learned single Judge.
After appealing ,,to a Division Bench without success the appellant came in appeal 529 to this Court with a certificate granted by the High Court.
It was urged on behalf of the appellant that by the application of the principle contained in paragraph 4(h) of the Circular issued by the Managing Director under cl.
4(3) of the Life Insurance Corporation Regulation 1958, it was competent to the corporation to terminate the services of the respondents.
It was contended that where cases are dealt with under paragraphs 4(h) and 5 of the Circular, there can be no question of the application of cl. 10 of the Life Insurance Corporation Field Officers Order, 1957, which empowers the appropriate authority to reduce the remuneration of the Development Officer or to terminate his services and in either case, an opportunity of showing cause against the action proposed to be taken has to be given to him.
The contention of the respondents was that the termination of their services can be brought about only under cl.
10(a) or 10(b) of the order, and since it has not been so brought about, the impugned orders are invalid.
Held: (i) The power of the corporation to make Regulations is burdened with the condition that these Regulations must not be inconsistent with the Act and the rules framed thereunder , so that if any of the provisions contained in the Regulations made by the corporation under section 49 of the Act are found to be inconsistent either with section 11(2) or with the order made by the Central Government under section 11(2) of the Act, they would be invalid.
(ii) Paragraph 4(h) means that in cases falling under it, the services of the officers concerned would be liable to be terminated, and that means that the termination of the services, of the said officers must be effected in the manner prescribed by cl. 10 of the Order.
That is how paragraph 4(h) of the Circular and cl.
10 of the Order can be reasonably reconciled.
This applies equally to paragraph 5 of the Circular.
(iii) It was competent to the corporation to adopt the Circular, and in consequence, lay down the principles which should be followed in fitting individual officers into the scheme prescribed by cl. 5 of the order.
The total amount of remuneration would undoubtedly be determined in the light of the principles prescribed by the Circular, but under the guise of fitting in a particular officer in the light of the said principles it would not be open to the corporation to demote the officer from the grade of Development Officer to a lower grade; that would be beyond the competence of the Regulations.
(iv) Since the orders terminating the services of the respective respondents have not been passed in accordance either with cl.
10(a) or (b), they must be held to be invalid.
(v) An employee whose performance is poor is liable to be dealt with under cl. 10 of the order.
But it is not open to the corporation to require that person to accept an assignment in a lower or different category.
What the Regulations are authorised to do is merely to determine his salary in the category of develop 1/SCI/64 34 530 ment officers, and so, an order terminating his service on the ground that he refused to take an assignment in a lower category cannot be justified.


judgement:
Appeal No. 78 of 1962.
Appeal from the judgment and order dated April 13,1960, of the Bombay High Court in Income tax Reference No 40 of 1959.
R.J. Kolah, J.B. Dadachanji, O.C. Mathur and Ravinder Narain, for the appellants.
N.D. Karkhanis and R.N. Sachthey, for the respondent.
November 25, 1963.
The Judgment of the Court was delivered by SARKAR J.
This is an appeal against a judgment of the High Court at Bombay given on a case stated to it under the Income tax Act and answering in the affirmative the following question: "Whether the levy of Rs. 68,501/ as penalty for concealment in the original return for the assessment year 1951 52 is legal?" The question arose, in the assessment of the appellant, a firm, for the year 1951 52 in respect of which the accounting year was the calendar year 1950.
The assessee carried on business at Surat it had a branch at Bangkok to which it exported cloth from India.
The branch also made purchases locally and sold them.
During the last world war the business at Bangkok had been in abeyance but it was re started after the termination of the hostilities.
In its return for the assessment year 1949 50 the assessee did not include any profit of the Bangkok branch but stated that the books of account of the Bangkok branch were not available and that therefore its profit might now be assessed on an estimate basis subject to action under section 34 or 35 on production of statement of account.
: The assessment was there 563 upon made on the basis of profit at 5 % on the export to Bangkok branch appearing in the Surat books.
For the year 1950 51 again there was no reference to the Bangkok branch in the return and a similar estimate was made for this year also.
For the year, 1951 52 also the Bangkok business profits were not shown but on January 11, 1952, the Income tax Officer issued a notice to the assessee under section 22(4) of the Act to produce the profits and loss account and balance sheet with the relevant books.
The assessee excused itself by alleging on January 29, 1952 that the books were at Bangkok and the profit and loss account and the balance sheet could not be drawn up unless its partner, Hatimbhai A. Malbary, went there personally and there was no certainty as to when he would go there and promising that in the following year these accounts for the calendar year 1950 would be produced.
Thereupon the Income tax Officer made an estimate of the sales of the Bangkok branch at Rs. 7,50,000 and of the net profits at 5% thereon, amounting to Rs. 37, 5001 .
This assessment was made on January 31, 1952.
On the same day he issued a notice under section 28(3) of the Act requiring the assessee to show cause why a penalty under s.28(1)(c) for concealment of the particulars of the income of 1950 should not be levied.
The assessee was heard on this notice and on January 22, 1954, the Income tax Officer imposed a penalty of Rs.20,000 on it as its explanation was not acceptable.
In the meantime assessment proceedings for the year 1952 53 had commenced and this year also the assessee adopted a similar attitude as in the previous years.
The Income tax Officer was however insistent and, therefore, after various adjournments, the assessee had on August 17, 1953 to produce the accounts and books of the Bangkok branch.
It appeared from these books that in the calendar year 1950 the assessee had made a profit of Rs. 1,25,520/ .
The Income tax Officer thereupon commenced proceedings under section 34 of the Act against the assessee in respect of the assessment year 1951 52 and gave 564 notice to the assessee to submit a return.
The assessee then submitted a return stating therein correctly the profits for the calendar year 1950.
The Income tax Officer completed that assessment after directing the .issue of a further notice under section 28(3) on April 8, 1954 requiring the assessee to show cause why penalty should not be levied for deliberately concealing the particulars of his income of 1950.
Pursuant to this notice the Income tax Officer passed another order on February 28, 1957 imposing a penalty of Rs. 68,501.
So there were two orders of penalty.
The assessee appealed to the Appellate Assistant Commissioner against both the aforesaid orders of penalty but the appeals were rejected.
There is no dispute as to the assessment of the income.
The assessee then appealed to the Income tax Appellate Tribunal.
The Tribunal observed, "It is indeed difficult to understand the action ' of the Department in splitting up one offence into two proceedings.
So far as the levy on the basis of the 23(3) assessment is concerned, it appears to have no basis as till that stage the Department had not succeeded in establishing and bringing home any guilt.
It was still in the region of estimate. .
The levy of Rs. 20,000 has to be remitted in full.
The levy of Rs. 68,501 is entirely different.
With the definite knowledge that the Income tax Officer had obtained that the profit for the year was Rs. 1,25,520 he has clearly proved the guilt of concealment against the assessee. .
The penalty is not at all excessive and accordingly confirmed.
" The revenue authorities never questioned the cancellation of the first order of penalty.
Thereafter the asseseee obtained a reference to the High Court of the question which we have set out at the beginning of this judgement.
That question, it will be noticed, referred only to the penalty of Rs. 68,501 / imposed pursuant to the second notice under section 28(3) for concealing the particulars of the income of 1950.
It has to be observed that in the return that was filed in the proceedings started under 565 section 34, the assessee furnished correct particulars and it also produced the books.
So it had not committed any default in connection therewith.
The notice must therefore be taken to have been in respect of the original concealment of the income.
The assessee knew and this is what was found by the Tribunal% and that is a finding of fact which is binding on a Court in a reference that its profits were Rs. 1,25,520/and it had not disclosed that profit originally nor produced the relevant books but permitted the Incometax Officer to proceed on an estimate of that profit at Rs. 37,500/ .
It was contended in the High Court that in respect of the same concealment there were thus two penalties involved, namely, one of Rs. 20,000 and the other of Rs. 68,501/ .
The High Court agreed with the contention of the assessee that two penalties could not be levied in respect of identical facts but it held that the penalties in this case had not been levied on the same facts.
It observed that the original assessment was solely on the basis of an estimate and the second assessment was after knowledge of the full facts of the concealed income.
In this Court Mr. Kolah has urged that the second order for penalty was illegal because there was one concealment and in respect of that an order for penalty of Rs. 20,000/ had earlier been made.
He contended that there was no jurisdiction to make the second order of penalty while the first order stood and for that reason the second order must be treated as a nullity.
He further stated that the fact that the first order was subsequently cancelled by the Tribunal would not set the second order on its feet for it was from the beginning a nullity as having been made when the first order stood.
We are unable to accept this argument.
It may be that in respect of the same concealment two orders of penalty would not stand but it is not a question of jurisdiction.
The penalty under the section has to be correlated to the amount of the tax which would have been evaded if the assessee had got away with the concealment.
In this case having assessed 566 the income by an estimate, the Income tax Officer levied a penalty on the basis of that estimate.
Later when he ascertained the true facts and realised that a much higher penalty could have been imposed, he was entitled to recall the earlier order and pass another order imposing the higher penalty.
If he had omitted to recall the earlier order that would not make the second order invalid.
He had full jurisdiction to make the second order and he would not lose that jurisdiction because he had omitted to recall the earlier order, though it may be that the two orders could not be enforced simultaneously or stand together.
However, in the present case the earlier order having been cancelled and no objection to the cancellation having been taken, we have only one order and that for the reasons earlier stated is, in our view, a legal order.
It was also said that when the first order of penalty was passed the Income tax Officer was in possession of the full facts which would have justified the imposition of the higher penalty.
It was pointed out that the first order of penalty was passed on January 22 1954 while the books disclosing the real state of affairs had been produced before the Income tax Officer on August 17, 1963.
It was contended that in inspite of this he passed the order imposing a lower penalty, he had no right later to change that order In support of this contention reference was made to C. V. Govinderajulu Iyer vs Commissioner of Income tax, Madras" '.
There it was argued that the original proceeding under section 23(3) and a proceeding under section 34 in respect of the same period were different and in the latter proceeding a penalty could not be imposed for a concealment in respect of the original proceeding.
Rajamannar C.J. rejected this contention and held, "that so long as the proceedings under Section 34 relate to the assessment for the same period as the original assessment, the Income tax Officer will be competent to levy a penalty on any ground open to him under Section 28(1), even though it relates (1) [16] I.T.R. 391 567 to the prior proceeding".
He however proceeded to observe, "There may be one possible qualification of his power, and that is when the default or the act which is the basis of the imposition of the penalty was within the knowledge of the officer who passed the final order in the prior proceeding and if that, officer had failed to exercise his power under Section 28 during the course of the proceeding before him.
Possibly in that case he would have no power.
" Learned counsel for the appellant relied on this latter ob servation in support of his contention.
We do not think that Rajamannar C.J. wished to state this qualification on the power of the Income tax Officer as a proposition of law.
It was not certainly necessary for the purposes of the case before him.
We do not wish to be understood as subscribing to it as at present advised.
But assume that this statement of the law is correct.
It has no application to the present case.
What is said is that if the default which entails the penalty was within the knowledge of the authority when it passed the final order in the prior proceeding no penalty could be later imposed.
Now Rajamannar C.J. was not dealing with a case in which two penalties had been imposed.
The case before him was one in which no return had been filed pursuant to a general notice but subsequently section 34 proceedings had been stated and resulted in an assessment and an order imposing a penalty was thereupon passed.
The final order in the prior proceedings referred to by the learned Chief Justice must, therefore, be final assessment order in the prior proceedings.
Now in the present case the final order in the prior assessment proceedings was made on January 31, 1952 and on that date the Income tax Officer had no knowledge of the concealment of income of Rs. 1,25,520.
Therefore it seems to us that the observation of Rajamannar C.J. does not assist Mr. Kolah.
We may also observe that the first order of penalty passed on January 22, 1954, was pursuant to a notice issued on January 31, 1952 in respect of which the assessee had offered 568 his explanation on March 11, 1952.
That notice 'was not concerned with any concealment that came to light from the production of the books on August 17, 1953 and, therefore, on this concealment the assessee had never been heard.
In assessing a penalty If on this notice subsequently acquired knowledge would be irrelevant.
The result is that the appeal fails and it is dismissed with costs.
Appeal dismissed.

summary:
The appellant, a firm of Surat, had a branch at Bangkok, to which it exported cloth, and the branch also made purchases locally and sold them.
During the war the business of the branch had been in abeyance, but was re started after the termination of the hostilities.
in its return for the assessment year 1949 50 the appellant did not include any profit of the branch, but stated that the books of account of branch were not available, and therefore its profits might now be assessed on an estimate basis subject to 561 action under s.34 or 35.The assessment was made on the basis of profit at 5 % on the export to the branch appearing in the Surat books.
A similar estimate was made for year 1950 51.
For the year 1951 52 also the business profits of the branch were not shown but the Income tax officerissued a notice to the assessee to produce the relevant accountsand books.
The appellant excused itself by promising that in thefollowing year these accounts for the year 1950 would be produced.
Thereupon the Income tax Officer made an estimate of the sales of the branch and of the net profits at 5 % thereon, amounting to Rs. 37,500/ , and the same day he issued a notice to show cause why a penalty for concealment of the particulars of the income of 1951 52 should not be levied.
Subsequently, the Income tax Officer imposed a penalty of Rs. 20,000/ on it as its explanation was not acceptable.
In the meantime assessment proceedings for the year 1952 53 had commenced and the appellant adopted a similar attitude.
The Income tax Officer was insistent and, therefore, appellants had to produce the accounts and books of the branch, from which it appeared that for the year 1951 52 the appellant had made a profit of Rs. 1,25,520/ .
The Income tax Officer issued a further notice to the appellant to show cause why penalty should not be levied for deliberately concealing income for the year 1951 52.
Pursuant to this notice the Income tax Officer passed another order imposing a penalty of Rs. 68,501/ .
The appellant 's appeal to the Appellate Assistant Commissioner against both the orders of penalty was rejected.
On appeal, the Tribunal cancelled the first order of penalty but confirmed the second one.
This hereafter, the appellant obtained a reference to the High Court on the question: "Whether the levy of Rs. 68,501/ as penalty for concealment in the original return for the assessment year 1951 52 is legal?" The High Court answered the question in the affirmative.
On the appeal by special leave it was urged that the second order for penalty was illegal because there was one concealment and in respect of that a penalty of Rs. 20,000/ had earlier been imposed, that there was no jurisdiction to make the second order of penalty while the first order stood and for that reason the second order must be treated as a nullity; and that the fact that the first order was subsequently cancelled by the Tribunal would not set the second order on its feet for it was from the beginning a nullity as having been made when the first order stood.
Held: (i) The contentions must be rejected.
The Income tax Officer had full jurisdiction to make the second order and he would not lose that jurisdiction because he had omitted to recall the earlier order, though it may be that the two orders in respect of the same concealment could not be enforced simultaneously or stand together.
When the Income tax Officer ascertained the true facts and realised that a much higher penalty could have been imposed, he was entitled to recall the earlier order and pass another order imposing the higher penalty.
If he had omitted to recall the earlier order that would not make the second order invalid, 1 SCI/64 36 562 (ii)In the present case the earlier order having been cancelled and no objection to the cancellation having been taken, there is only one order, which is a legal order.
C.V. Govindarajulu Iyer vs Commissioner of Income tax, Madras, , distinguished.