judgement:
Civil Appeal No. 829 of 1975.
From the Judgment and Order dated 11 4 74 of the Calcutta High Court in Appeal from original Order dated 221/70.
section C. Manchanda, and Miss A. Subhashini for the Appellant V. section Desai, Sanjay Bhattacharya and Rathin Dass for the Respondent.
The Judgment of the Court was delivered by BHAGWATI, J.
This appeal by certificate is directed against an order passed by a Division Bench of the High Court of Calcutta allowing an appeal against a decision of a Single Judge dismissing the writ petition of the respondent.
The facts giving rise to the appeal may be briefly stated as follows: The respondent was assessed to income tax for the assessment year 1959 60 and certain interest paid by the respondent to creditors from whom it claimed to have borrowed monies on hundis, was allowed as deductible expenditure.
The assessment of the respondent was completed on 23rd August, 1960.
On or about 25th January, 1968, however, a Notice was issued by the Income Tax Officer under Section 148 of the Income Tax Act, 1961 to re open the assessment of the respondent for the assessment year 1959 60.
The Notice was obviously under Section 147(a) since a period of four years had already elapsed from the close of the assessment year 1959 60 and no Notice could be issued under Section 147(b).
The Income Tax Officer claimed that the transactions of loan represented by the hundis were bogus and no interest was paid by the respondent to any of the 907 creditors shown in the hundis and it was wrongly allowed as a deduction and hence a part of the income of the respondent had escaped assessment by reason of the failure of the respondent to disclose fully and truly all material facts necessary for its assessment.
The respondent challenged the validity of the Notice issued by the Income Tax Officer by filing a writ petition in the Calcutta High Court.
The respondent contended that there was no failure on its part to disclose fully and truly all material facts necessary for its assessment and that in any event the Income Tax Officer had no reason to believe that any part of the income of the respondent had escaped assessment by reason of such failure on the part of the respondent.
The Income Tax Officer in the affidavit in reply filed by him on 5th December, 1968 declined to disclose the facts which had weighed with him in reaching the belief that the income of the respondent had escaped assessment by reason of its failure to disclose fully and truly all material facts, on the ground that if such facts were disclosed to the respondent, it would cause great prejudice to the interests of the Revenue and would frustrate the object of re opening the assessment.
This was obviously an untenable stand because the existence of reason to believe on the part of the Income Tax Officer was a justiceable issue and it was for the court to be satisfied whether in fact the Income Tax Officer had reason to believe that income had escaped assessment by reason of failure of the respondent to make a full and true disclosure.
The Income Tax Officer realising this position filed a further affidavit on 27th January, 1970 stating as follows: "In January 1968 I was the Income Tax Officer 'I ' Ward, Hundi Circle, Calcutta.
On or about the 25th January 1968 I issued a notice under Section 148 of the Income Tax Act, 1961 on the petitioner.
My reasons for issuing such notice were these.
In the course of assessment of the petitioner for assessment year 1963 64 it was discovered that various items shown as loans against the security of hundis in the petitioner 's books of account for the previous year relevant to assessment year 1959 60 were in fact fictitious.
Credits against the names of certain persons as having advanced loans viz. Amarlal Moolchand, Girdharidas, Reghoomal, Murlidhar, Kanhaiyalal and Deudaram Basdeo in the petitioner 's books were found not to be genuine.
It appeared during assessment proceedings for 1963 64 that none of such loans were genuine.
In the premises, it appeared to me that the petitioner had failed to disclose fully and truly all material facts necessary for its assessment, and a portion of the petitioner 's income had escaped assessment by reason of such failure".
908 The writ petition was heard by a Single Judge of the High Court and he took the view that the affidavit of the Income Tax Officer dated 27th January, 1970 clearly showed that he had reason to believe that income of the respondent had escaped assessment by reason of its failure to disclose fully and truly all material facts and he accordingly dismissed the writ petition.
The respondent preferred an appeal and a Division Bench of the High Court disagreeing with the view taken by the Single Judge held that there was no failure on the part of the respondent to disclose fully and truly all material facts and in any event there was no material on the basis of which it could be said that the Income Tax Officer had reason to believe that any part of the income had escaped assessment by reason of such failure on the part of the respondent.
The Division Bench accordingly allowed the writ petition and quashed and set aside the Notice for re opening the assessment.
The Income Tax Officer thereupon preferred the present appeal to this Court after obtaining a certificate from the High Court.
The present case is clearly covered by the decision of this Court in Commissioner of Income Tax, Calcutta vs Burlop Dealers Ltd. There the assessee in the course of its original assessment to income tax for the assessment year 1949 50 had produced a partnership agreement with one Ratiram Tansukhrai and claimed that the profits earned by it from H. Manory Ltd. had been divided between itself and Ratiram Tansukhrai under the partnership agreement and its one half share of the profit, namely, Rs. 87,937/ was the only amount assessable to tax in respect of this source.
The Income Tax Officer accepted the partnership agreement and assessed the assessee only on the profit of Rs. 87,937/ .
It appears that while making assessment for the assessment year 1950 51 the Income Tax Officer found that the partnership agreement between the assessee and Ratiram Tansukhrai was a got up device to reduce the profit received from H. Manory Ltd. and the assessee was, therefore, liable to tax on the entire amount of profit coming from H. Manory Ltd. This view taken by the Income Tax Officer was confirmed on appeal by the Appellate Assistant Commissioner and the Income Tax Tribunal.
The High Court also on a reference agreed with the view of the Tribunal.
The Income Tax Officer thereupon issued a Notice under Section 34(1) (a) of the Income Tax Act to re open the assessment of the assessee for the assessment year 1949 50 in order to bring to tax the further amount of Rs. 87,937/ being the half share of the profit from H. Manory Ltd. alleged to have been paid to Ratiram Tansukhrai under the partnership agreement.
The assessee con 909 tended that it had produced all the relevant accounts and documents necessary for completing the assessment and it was under no obligation to inform the Income Tax Officer about the true nature of the transaction and there was accordingly no failure on its part to disclose fully and truly all material facts necessary for its assessment.
This contention was negatived by the Income Tax Officer and the income of the assessee was re assessed by adding Rs. 87,937/ to the income returned by the assessee.
The Appellate Assistant Commisioner confirmed the order of the Income Tax Officer on appeal, but on further appeal, the Tribunal accepted the contention of the assessee and held that there was no failure on the part of the assessee to make a full and true disclosure of the material facts and hence the Income Tax Officer was not justified in seeking to re open the assessment under Section 34(1) (a) of the Income Tax Act.
The Revenue applied to the Tribunal for a reference but the application was rejected and the High Court also dismissed the application of the Revenue for calling for a reference from the Tribunal.
The Revenue thereupon preferred an appeal to this Court by special leave.
The appeal was rejected by this Court on the ground that the assessee had disclosed all its books of account and evidence from which material facts could be discovered and it was under no obligation to inform the Income Tax Officer about the possible inferences which might be raised against him and hence there was no failure on its part to disclose the preliminary facts relevant to the assessment which would invite the applicability of Section 34(1) (a).
It will thus be seen that according to this judgment, there was no obligation on the assessee to disclose that the partnership agreement produced by it was bogus and that the entries made by it in its books of accounts were false.
The assessee discharged the obligation which lay upon it by disclosing its books of account and evidence from which material facts could be discovered and it was for the Income Tax Officer to decide whether the documents produced by the assessee were genuine or false.
Here also the respondent produced all the hundis on the strength of which it had obtained loans from creditors as also entries in the books of account showing payment of interest and it was for the Income Tax Officer to investigate and determine whether these documents were genuine or not.
The respondent could not be said to have failed to make a true and full disclosure of the material facts by not confessing before the Income Tax Officer that the hundis and the entries in the books of account produced by it were bogus.
We do not see any distinction at all between Burlop Dealers case (supra) and the present one and the language of Section 147(a) being identical with that of Section 34(1)(a), the ratio of the decision in Burlop Dealers case (supra) must govern the decision of the present case.
We 910 must, therefore, hold that there was no failure on the part of the respondent to disclose fully and truly all material facts necessary for its assessment and the condition for the applicability of Section 147(a) was not satisfied.
We may also point out that though it was contended in the Writ Petition that the Income Tax Officer could have no reason to believe that any part of the income of the respondent had escaped assessment by reason of its failure to make a full and true disclosure of material facts, the Income Tax Officer did not disclose in his affidavit any material on the basis of which it could be said that he had come to the requisite belief.
All that the Income Tax Officer stated in his affidavit was that he discovered that the transactions of loan against security of hundis were not genuine and that the credits against the names of certain persons who were alleged to have advanced loans were bogus.
The Income Tax Officer merely stated his belief but did not set out any material on the basis of which he had arrived at such belief so that the Court could decide for itself whether there was any material on the basis of which the Income Tax Officer could reasonably entertain such belief.
We are, therefore, not at all satisfied on the affidavit that the Income Tax Officer had reason to believe that a part of the income of the respondent had escaped assessment by reason of its failure to make a true and full disclosure of the material facts.
The Notice under Section 147(a) of the Income Tax Act for re opening the assessment must in the circumstances be held to be void.
We accordingly dismiss the appeal with costs.
P.B.R. Appeal dismissed.

summary/full:
In respect of the assessment year 1959 60 the assessee was allowed deduction of interest paid to creditors from whom it claimed to have borrowed moneys on hundis.
In January, 1968 the Income Tax Officer issued a notice to the assessee under section 147(a) of the Income tax Act, 1961 on the ground that the transactions of loans represented by the hundis were bogus and no interest was paid by it to any of the creditors shown in the hundis, that it was wrongly allowed as a deduction and therefore a part of the assessee 's income had escaped assessment by reason of its failure to disclose fully and truly all material facts necessary for the assessment.
In the assessee 's writ petition before the High Court the Income Tax Officer at first declined to disclose the facts which had weighed with him in reaching the belief that income had escaped assessment on the ground that if they were disclosed it would cause great prejudice to the interests of revenue and would frustrate the object of reopening the assessment.
Later however, realising that this stand was untenable he gave his reasons for issuing the notice.
A Single Judge of the High Court dismissed the assessee 's writ petition.
On appeal a Division Bench held that there was no failure on the part of the assessee to disclose fully and truly all material facts and that in any event the Income Tax Officer had no reason to believe that any part of the income had escaped assessment by reason of such failure on the assessee 's part.
Dismissing the appeal, ^ HELD: There was no failure on the part of the asscssee to disclose fully and truly all material facts necessary for its assessment and the condition for the applicability of section 147(a) was not satisfied.
The notice in the circumstances was void.
[1910 A] (1) In CIT vs Burlop Dealers Ltd., this Court held that there was no obligation on the part of the assessee to disclose that the documents produced by it were bogus and that the entries made in its books of account were false.
The assessee discharged its obligation by disclosing its books of accounts and evidence from which material facts could be discovered and it is for the Income Tax Officer to decide whether the documents were genuine or false.
In the instant case the assessee could not be said to have failed to make true and full disclosure of the material facts by not confessing before the Income Tax Officer that the hundis and the entries in the books of account produced before him were bogus.
[909 G] CIT vs Burlop Dealers Ltd. ; applied.
(2) All that the Income Tax Officer stated in his affidavit was that he discovered that the transactions of loan against security of hundis were not genuine and that the credits against the names of certain persons who were alleged to have advanced the loans were bogus.
He merely stated his belief but did not set out any material on the basis of which he had arrived at such belief.
[910 C] (3) The existence of reason to believe on the part of the Income Tax Officer is a justiceable issue and it is for the court to be satisfied whether in fact the Income Tax Officer had any material on the basis of which he could reasonably entertain such belief.
[907 D]


judgement:
ivil Appeal Nos.
1724/69 and 1732 of 1971.
Appeals by Special Leave from the Judgment and Order dated 12 5 69 of the Allahabad High Court in Special Appeal Nos. 492 and 437 of 1968.
Naunit Lal and Faqir Chand for the Appellant in CA Nos.
1724/69.
G. N. Dikshit, O. P. Rana for Respondent No.1 in C.A. 1724/69 J. P. Goyal, section M. Jain and section K. Jain for Respondent No.2 in CA Nos.
1724/69 Miss Meera Bali for the Appellant in C.A. 1732/71 G. N. Dikshit and O.P. Rana for the Respondents in CA 1732/71 The Judgment of the Court was delivered by SEN J.
These two appeals by special leave, directed against the judgment of the Allahabad High Court dated May 12, 1969 raise common questions and therefore, are disposed of by this common judgment.
By separate notifications issued under section 3 of the U.P. Mahapalika Adhiniyam, 1959, the State Government constituted Municipal Corporations in five cities in the State, namely Kanpur, Agra, Varanasi, Allahabad and Lucknow w.e.f. February 1, 1960.
The appellant in the present appeal, Mohd. Rashid Ahmad was a permanent Assistant Engineer in the Development Board, Kanpur, constituted under the Cawnpore Urban Area Development Act, 1945.
In 1953, an Administrator was appointed of both the Development Board and the Municipal Board, Kanpur, constituted under the U.P. Municipalities Act, 1916, under the U.P. Local Bodies (Appointment of Administrators) Act, 1953.
The two local bodies, however, continued to have separate legal existence and their officers and servants continued as the employees of the respective bodies.
The appellant Mohd. Rashid Ahmad was appointed as Offg.
Executive Engineer by the Administrator of the Municipal Corporation, Kanpur, for a period of one year on September 12, 1960.
He has since then continued to function in the same capacity, on a purely temporary arrangement under s.577(ee), that is, for so long as no substantive appointment could be made to that post under s.106.
The Uttar Pradesh Public Service Commission, however, considered that he was not fit for appointment for the post of the Executive Engineer, Municipal Corporation, Kanpur.
831 The appellant in the connected appeal, Ashfaq Hussain was a permanent Sanitary Inspector in the Municipal Board, Kanpur.
After the constitution of the Municipal Corporation, Kanpur, he continued to hold that post under section 577(e).
On July 24, 1967 he was transferred in the same capacity to the Municipal Corporation, Allahabad, where he was promoted temporarily as an Assistant Engineer.
He, therefore, stood provisionally absorbed under s.577(e).
Both the U.P. Nagar Mahapalika Adhiniyam, 1959, and the U.P. Municipalities Act, 1916 empowered these local bodies to appoint their employees subject to certain regulatory control by the State Government.
By section 12 of the U.P. Nagar Mahapalika (Sanshodhan) Adhiniyam, 1964, the State Legislature added section 112A to the U.P. NagarMahapalika Adhiniyam, 1959.
Similarly, by s.37 of the U.P. Municipalities (Amendment) Act, 1964, s.698 was added to the U.P. Municipalities Act, 1916, which was identical in terms to s.112A. Section 112A of the Adhiniyam empowered the State Government to provide by rules for the creation of one or more services to be known as Centralised Palika Services, as it may deem fit and proper, common to all the Municipal Corporations and Municipal Boards, and prescribe the method for recruitment and conditions of service of persons appointed to any such service.
Section 112A of the U.P. Nagar Mahapalika Adhiniyam, 1959, enacts: "112A. Centralization of services. (1) Notwithstanding anything contained in section 106 to 110, the State Government may at any time by rules provide for the creation of one or more services of such officers and servants as the State Government may deem fit, common to the Mahapalikas or to the Mahapalikas and Municipal Boards, of the State, and prescribe the method of recruitment and conditions of service of persons appointed to any such service.
(2) When any such service is created, officers and servants serving on the posts included in the service, as well as officers and servants performing the duties and functions of those posts under sub clause (1) of clause (ee) of section 577 may, if found suitable, be absorbed in the service, provisionally or finally, and the services of others shall stand determined, in the prescribed manner.
(3) Without prejudice to the generality of the provisions of sub sections (1) and (2), such rules may also provide for 832 consultation with the State Public Service Commission in respect of any of the matters referred to in the said sub sections." The State Government in exercise of the powers conferred by section 112A of the U.P. Nagar Mahapalika Adhiniyam, 1959 and s.69B of the U.P. Municipalities Act, 1916, made the U.P. Palika (Centralised) Services Rules, 1966, which came into force on July 9, 1966.
Rule 3 created 19 Palika (Centralised) Services, covering 76 posts, common to all the Municipal Corporations and Municipal Boards.
The rules provided for regulating the recruitment and conditions of service of the persons appointed to these newly created services.
Rule 6 dealt with recruitment to the Centralised Palika Services.
Due to inadvertence r.6 was not drafted in conformity with the requirements of s.112A and s.69B. That was because cl.(1) provided for automatic final absorption of officers and servants provisionally absorbed under s.577(e), contrary to the provisions of s.112A of the Adhiniyam and s.69B of the Municipalities Act.
On September 5, 1966, the Governor promulgated the U.P. Local Self Government (Amendment) Ordinance, 1966, which was replaced by the U.P. Local Self Government Laws (Amendment) Act 1966.
Section 19 of the Act reads as follows: "19.
Deeming, validation, etc.
The Uttar Pradesh Palika (Centralised Services Rules, 1966, shall be deemed to have been made under the provisions of the Uttar Pradesh Nagar Mahapalika Adhiniyam, 1959, and the U.P. Municipalities Act, 1916, as if the amendments made by this Act to the said Acts were always in force and be deemed to be and always to have been valid and shall, subject to any amendments made thereto, continue in force, and notwithstanding anything contained in the said Acts, the power to make amendments to the said rules may, during the period ending on September 4, 1967, be exercised retrospectively.
" It, in effect, amended section 112A of the Adhiniyam and s.69B of the Municipalities Act.
Section 4 of the Act provided that the U.P. Palika (Centralised) Services Rules, 1966 shall be deemed to be valid.
The Act further provided that the amendments made to the rules may be given retrospective effect.
The power of making retrospective rules was, however, limited to a period of one year from the commencement of the ordinance.
833 On October 10, 1966, the State Government passed the U.P. Palika (Centralised) Services (Amendment) Rules, 1966.
These rules repealed and re enacted r.6 with retrospective effect from July 9, 1966.
Under cl.
(ii) of r.6(2) the State Government had to pass a final order of absorption, in respect of particular officers and servants of the erstwhile Municipal Boards, if they were found suitable, in accordance with s.112A of the Adhiniyam.
Clause (iii) provided that such orders had to be made on or before March 31, 1967.
By cl.(iv) if no orders of final absorption were passed till then, the officer or servant concerned was to be deemed to have been finally absorbed.
The State Government was, however, constrained to make the U.P. Palika (Centralised) Services (Amendment) Rules, 1967 on March 30, 1967 and amend cl.
(iii) of r.6(2), as the work of final absorption could not be completed by March 31, 1967.
The date of passing the necessary orders in that behalf was sought to be shifted to June 30, 1967.
A new cl.
(iii) was accordingly substituted by this amendment effected on March, 30, 1967.
But, unfortunately the amendment was made to come into effect from April 1, 1967.
This created a serious legal infirmity, as on the expiry of March, 31 1967, the legal fiction embodied in cl.
(iv) was brought into play.
Thereafter, the State Government made the last amendment to the U.P. Palika (Centralised) Services (Amendment) Rules, 1967 on June 26, 1967, in supersession of the U.P. Palika (Centralised) Services (Amendment) Rules, 1967 made on March 30, 1967.
This amendment introduced a new cl.(iii) to r.6(2), in place of the existing cl.(iii) of U.P. Palika (Centralised) Services Rules, 1966, by which the date of passing the order was shifted from March 31, 1967 to August 31, 1967, with retrospective effect from July 9, 1966.
Having provided for the creation of Centralised Palika Services, the State Government had, in the meanwhile, laid down the procedure by which an office or servant provisionally absorbed under section 577 (e) of temporarily appointed under s.577(ee), were to be finally absorbed, if found suitable, under s.112A. By its three circulars dated January 11, 1967; January 31, 1967 and February 23, 1967, addressed to the Divisional Commissioners, it intimated the constitution of Divisional Committees for making necessary recommendations to the State Government in this behalf.
The first circular embodied the Government policy in these terms: "Government desire that all officers and servants, whose services are proposed to be determined on grounds of unsuita 834 bility may be given an opportunity of personal interview by the Committee." After such interviews, the Committees were to finalise their recommendations and furnish the same to the Government.
In view of the limited time available to the Government, for finalising action in the matter, it was desired that the first meeting of the Committees should be held in the last week of January or in the first week of February, 1967.
The Divisional Commissioner were required to intimate the date to the Secretary to the Government, Local Self Government Department, so that all necessary arrangements could be made to forward the character rolls and service records of the Centralised Services officers and servants.
By the second circular, the State Government re constituted the Committees, so far as the five Municipal Corporations were concerned, and directed that these Divisional Committees were to make selections for all Centralised Services except those whose starting salary was Rs. 500/ and above.
Selection for the posts in the latter category were to be made by the State Selection Committee.
Thus, the Government divided the officers and servants into two categories, and their cases were to be dealt with at two different levels for purposes of final absorption under r.6(2)(iii) read with s.112A. By its third circular, the State Government without disturbing the earlier categorisation of officers and servants into two classes, laid down certain broad criteria with a view to secure a reasonable uniformity in the standards to be applied by the Divisional Committees in making the selection.
It may, however, be observed that the Government reiterated its declared policy that all such officers and servants, whose services were proposed to be determined on the ground of unsuitability be given an opportunity of personal interview by the Committees stating: ". the committee should interview the official concerned to judge his suitability or otherwise for absorption in the centralised services.
When it is proposed to declare an official to be unsuitable for absorption on the basis of adverse entries, the divisional committee should afford an opportunity to the official concerned to appear before it and clear up his position.
" It was also desired that only those adverse remarks may be considered against the official concerned, which were found to have been duly communicated to him.
835 It must at once be stated that though the State Government had by its circular dated January 31, 1967 entrusted the task of determining the suitability or otherwise of officers and servants holding Centralised Services posts drawing less than Rs. 500/ , to Divisional Committees, and reserved such function in respect of officers and servants drawing Rs 500/ or more, to the State Selection Committee, and by its subsequent circular dated February 23, 1967 maintained the classification of such officers and servants for purposes of judging their suitability for absorption in the Centralised Palika Services, the final orders of absorption in each case under s.112A were passed by the State Government.
In the former class, the recommendations of Divisional Committees were scrutinised by the State Government in the Local Self Government Department, in the light of the service records of the officials concerned, and the necessary orders thereon were passed.
In respect of the latter category, the Secretary to the Government, Local Self Government Department prepared a note and put it up for the Minister for passing the final orders.
It is also worthy of mention that the delay in completing the work of final absorption by the State Government was mainly due to three factors, namely; (1) due to shortness of the time available at its disposal, (2) the number of officers and servants holding the Centralised Services posts under s.577(e) and (ee) was quite large, and (3) because of delay on the part of the erstwhile Municipal Boards to forward the character rolls and service records of the officers and servants concerned.
On account of this, the task of absorption under s.112A could not be completed before March 31, 1967 i.e., the date originally fixed by cl.(iii) of r.6(2) of the U.P. Palika (Centralised) Services Rules 1966.
The period was, therefore, subsequently extended from March 31, 1967 to June 30, 1967, and thereafter from March 31, 1967 to August 31, 1967.
Eventually, the State Government in exercise of its powers under cl.(iii) of r.6(2) of the U.P. Palika (Centralised) Services Rules, 1966 determined the services of the appellant Mohd. Rashid Ahmad on July 18, 1967 and that of Ashfaq Hussain on August 27, 1967, on the ground that they were not found fit for absorption under s.112A of the Adhiniyam.
The two appellants and several other employees of the erstwhile Municipal Boards and District Boards challenged the validity of the various orders passed by the State Government terminating their services before the Allahabad High Court on several grounds.
Amongst others, they challenged the validity of r.6(2) (iii), framed under section 112A 836 of the Adhiniyam, on the ground that it was ultra vires the State Government as it brings about extinction of the relationship of employer and employees between them and the erstwhile Municipal Boards.
It was also urged that the impugned orders were violative of Articles 14 and 16 of the Constitution because the classification made by the State Government by its circular dated January 31, 1967 entrusting the task of determination of the suitability or otherwise of officers and servants holding Centralised Services posts drawing less than Rs. 500/ to Divisional Committees, which were enjoined to give them the right of a personal hearing to have their say in the matter of final absorption, and entrusting of such function in respect of officers and servants drawing Rs. 500/ and above to the State Selection Committee without a corresponding right of hearing, was without any rational basis.
It was also urged that the impugned orders were vitiated being in breach of the rules of natural justice.
A Division Bench of the Allahabad High Court, however, rejected all these contentions.
In view of the language of Entry 5, List II of the Seventh Schedule, the objection regarding the validity of r.6(2) (iii) was rightly not pressed before us.
On the view that we take of the various circulars issued by the State Government laying down the procedure for dealing with the question of suitability or otherwise of officers and servants of the erstwhile Municipal Boards for absorption in the Centralised Services under r.6(2)(iii) the contention based on Articles 14 and 16 of the Constitution also does not arise.
Learned counsel appearing for the appellants assailed the impugned orders of the State Government on two grounds, namely: 1.
By reason of the legal fiction contained in cl.(iii) of r.6(2), the services of the appellants stood finally absorbed in the U.P. Palika Centralised Services on March 31, 1967 due to the failure of the State Government to pass the necessary orders in that behalf before that date.
Under the legal fiction contained in cl.(iv) thereof, and the subsequent amendment made by the U.P. Palika (Centralised) Services (Amendment) Rules, 1967 which came into force on April 1, 1967, the vested rights acquired by them to hold their respective posts could not be affected to their detriment; and 2.
The orders of termination of services passed by the State Government were vitiated due to its failure to give to the appellants an opportunity of hearing.
837 With respect to the first contention it is urged that the appellants stood provisionally absorbed under section 577(e) read with cl(i) of r.6(2).
It is said that they would be deemed to have been finally absorbed on March 31, 1967, if no orders contemplated by cl.(ii) thereof were made with respect to them on or before that date.
The argument is that the two subsequent amendments made on March 30, 1967 and June 26, 1967, by which the State Government purported to shift the date first from March 31, 1967 to June 30, 1967 and then from March 31, 1967 to August 31, 1967, were legally ineffective, as the first amendment made to cl.(iii) of r.6(2) came into force on April 1, 1967 by which date the appellants already stood finally absorbed.
There was, therefore, no power in the State Government to re open the question of final absorption under section 112A(2) of the Adhiniyam.
There is a fallacy in the argument.
The validity of the two amendments made by the State Government in r.6(2) from time to time cannot be questioned.
While it is true that a rule cannot be made with retrospective effect, the legislature by enacting s.19 of the U.P. Local Self Government (Amendment) Act, 1966, expressly conferred powers on the State Government to make retrospective rules.
Indeed, the validity of the amendments was not questioned before us.
Even if the first amendment of March 30, 1967 was ineffective because it was brought into force from April 1, 1967, the second amendment of June 26, 1967, which introduced a new clause (iii) to r.6(2) with retrospective effect from July 9, 1966, was fully effective.
It shifted the date for passing of the order of final absorption from March 31, 1967 to August 31, 1967.
Till the expiry of the date now fixed, i.e. August 31, 1967, the legal fiction contained in cl.
(iv) of r.6(2) would not be brought into play.
That is the inevitable legal consequence of the subsequent amendment made on June 26, 1967.
It would be clear that cl.
(iii) of r. 6(2), as amended on October 10, 1966, gave power to the State Government to pass an order of absorption under section 112A of the Adhiniyam, of an officer or servant of the Municipal Corporations provisionally absorbed under section 577(e) if found suitable, on or before March 31, 1967.
If there was a failure on the part of the State Government to pass such an order in respect of a particular officer or servant by that date, it would, unless there was a provision to the contrary, bring into play the legal fiction contained therein, and he would, by its force, be deemed to be finally absorbed in the post held by him.
838 The State Government in their return have candidly stated that due to inadvertence, the subsequent amendment effected on March 30, 1967, was made to take effect on April 1, 1967, by which date the legal fiction under cl.
(iv) had already taken effect.
It, therefore, became necessary to correct the serious legal infirmity.
It was for that reason that the subsequent amendment was made on June 26, 1967 by which a new cl.
(iii) was substituted in place of the existing cl.
(iii) to r.6(2).
The amendment substituted new cl.
(iii) to r. 6(2) with effect from July 9, 1966 i.e., from the very inception.
It was legitimately within the powers of the State Government to give to the amended rule a retrospective effect.
As a result of the amendment, the original cl.
(iii) was substituted by a new cl.
(iii) by which the date for passing an order of absorption by the State Government was shifted to August 31, 1967, which again introduced another legal fiction.
It provided that if there was a failure on the part of the State Government to pass an order of absorption by August 31, 1967, the officer or servant concerned shall be deemed to be finally absorbed.
This legal fiction was brought into force with effect from July 9, 1966.
It is needless for us to stress that both the legal fictions, one created by the original cl.
(iii) fixing the fictional date of absorption as March 31, 1967 and the subsequent legal fiction providing for the fictional date of absorption as August 31, 1967, could not co exist.
With the subsequent amendment effected on June 26, 1967, the earlier legal fiction was never brought into play, as by reason of the amendment, the State Government had the power to pass the necessary orders till August 31, 1967.
The introduction of the second fictional date i.e., August 31, 1967, was to "eclipse" the earlier fictional date of absorption.
Perhaps no rule of construction is more firmly established than this that retrospective operation is not to be given to a statute so as to impair an existing right or obligation other than as regards the matter of procedure, unless that effect cannot be avoided without doing violence to the language of the enactment.
If the enactment is expressed in a language which is fairly capable of either interpretation, it ought to be construed as prospective only.
But where, as here, it is expressly stated that an enactment shall be retrospective, the courts will give it such an operation.
It is obviously competent for the legislature, in its wisdom, to make the provisions of an Act of Parliament retrospective.
That is precisely the case here.
In Quinn vs Prairiedale where a subsequent enactment provided that the relevant section should be 839 deemed never to have been contained in the earlier statute, it was held to be sufficient to rebut the presumption against retrospectivity.
In State of Punjab vs Mohar Singh and in Inder Sohan Lal vs Custodian of Evacuee Property Delhi & Ors.(3) this Court had to consider the effect of repeal of an enactment followed by re enactment in the light of s.6 of the .
The line of enquiry, as observed in Mohar Singh 's case, would be not whether the new Act expressly keeps alive old rights and liabilities, but whether it 'manifests an intention to destroy them '.
It was held that section 6 of the was not entirely ruled out when there was a repeal of the enactment followed by a fresh legislation unless the new legislation manifested an intention to the contrary.
Such incompatibility had to be ascertained from a consideration of all the relevant provisions of the new law and the mere absence of a saving clause was, by itself, not conclusive.
In the present case, however, there can be no doubt that by the introduction of the new fictional date of absorption as August 31, 1967, there was a clear intention to destroy the earlier fictional date of March 31, 1967.
It would clearly be incompatible, on consideration of subsequent amendment, for both the provisions, i.e., the original cl.
(iii) fixing March 31, 1967 and the new cl.
(iii) fixing August 31, 1967 to be the fictional date, to operate simultaneously.
The effect of introduction of the new fictional date was to annihilate the earlier fictional date.
The appellants, therefore, did not stand automatically absorbed by the failure of the State Government to pass the necessary orders by March 31, 1967, as its powers stood extended by the subsequent amendment to August 31, 1967.
Before that date expired, the State Government in both these cases, passed the necessary orders terminating the services of the appellants as they were not found fit for absorption under section 112A (2) of the Act.
The first contention, therefore, fails.
That takes us to the second contention, namely, whether the impugned orders are vitiated on account of the failure of the State Government to afford to the appellants an opportunity of a hearing.
With the establishment of Municipal Corporations in five cities in the State, namely, Kanpur, Agra, Varanasi, Allahabad and Lucknow, w.e.f.
February 1, 1960, the Municipal Boards, Improvement Trusts, Development Boards etc.
in these cities, ceased to exist with the 840 repeal, by s.581 of the U.P. Nagar Mahapalika Adhiniyam, 1959, of the U.P. Municipalities Act, 1916, the U.P. Town Improvement Act, 1919, the U.P. District Boards Act, 1922, the Cawnpore Urban Area Development Act 1945, the U.P. Local Bodies (Appointment of Administrator) Act 1953, with effect from that date, in relation to these cities.
In consequence thereof, the existing posts held by the officers and servants of these bodies stood abolished.
Consequent upon the abolition of the posts, all officers and servants of the erstwhile local bodies lost their right to hold their posts.
The Adhiniyam, however, provided by s.577(e), notwithstanding anything contained in ss.106 and 107, for the provisional absorption of these officers and servants in the Municipal Corporations, till they were finally absorbed in any Centralised Services created by rules made under s.112A, or their services did not stand determined in accordance with such rules.
By s.577(ee) the Administrator was authorised to make temporary appointments of officers and servants against the posts mentioned in s.106 till substantive appointments were not made thereto as provided in the Adhiniyam, and they were to be treated as on deputation with the Municipal Corporations.
This was, not doubt, an ad interim arrangement until the State Government by rules framed under s.112A(1) provided for the creation of the Centralised Palika Services, common to all the Municipal Corporations and Municipal Boards, and made final absorption of officers and servants serving on the posts included in such Centralised Services under s.112A(2).
In the very nature of things, the officers and servants provisionally absorbed under s.577(e) or temporarily appointed under s.577(ee) could not be automatically absorbed in the newly created Centralised Services.
There had to be a screening of all such officers and servants with a view to determine their suitability or otherwise for final absorption in Centralised Services.
It was particularly necessary to weed out the dead wood to bring about an overall improvement in the municipal administration in these cities.
The very nature of the functions entrusted to the State Government under r.6(2) (iii) of the U.P. Palika (Centralised) Services Rules, 1966 for purposes of final absorption under s.112A of the Adhiniyam, implies a duty to act in a quasi judicial manner.
It cannot be denied that an officer or servant provisionally absorbed under s.577(e) or temporarily appointed under s.577(ee) had the right to be considered for purposes of final absorption.
Such officers or servants, particularly those in permanent employment who had put in 20 to 25 years of service in the erstwhile Municipal Boards or Development Boards were vitally affected in the matter of final absorption.
841 By s.112A of the Act, the legislature created a machinery for determining the suitability or otherwise of such officers or servants for absorption in the newly created Centralised Services.
The entrustment of this work to the State Government under s.112A, imposed a corresponding duty or obligation on the Government to hear the officers and servants concerned.
In view of this, it is rightly urged that the impugned orders, unless they conform to the rules of natural justice, were liable to be struck down as invalid.
It is a fundamental rule of law that no decision must be taken which will affect the rights of any person without first giving him an opportunity of putting forward his case.
In Local Government Board vs Arlidge Lord Haldane, L. C. tried to reconcile the procedure of a Government department with the legal standards of natural justice.
In Ridge vs Baldwin & Ors.
Lord Reid stated: "It is not suggested that he holds the position of a judge or that the appellant is entitled to insist on the forms used in ordinary judicial procedure, but he had 'a duty of giving to any person against whom the complaint is made a fair opportunity to make any relevant statement which he may desire to bring forward and a fair opportunity to correct or controvert any relevant statement brought forward to his prejudice." These decisions rest on the classical formulation of the "duty to hear" evolved by Lord Loreburn in Board of Education vs Rice.
The main requirements of a fair hearing are two: (1) a person must know the case he is to meet, and (2) he must have an adequate opportunity of meeting that case.
There has, ever since the judgment of Lord Reid in Ridge vs Baldwin (supra), been considerable fluctuation of judicial opinion in England as to the degree of strictness with which the rules of natural justice should be extended, and there is growing awareness of the problems created by the extended application of natural justice, or the duty to act fairly, which tends to sacrifice the administrative efficiency and despatch, or frustrates the object of the law in question.
Since this Court has held Lord Reid 's judgment in Ridge vs Baldwin would be of assistance in deciding questions relating to natural justice, there is always "the duty to act judicially".
There is, therefore, the insistence upon the requirement of a "fair hearing". 842 In A. K. Kraipak vs Union of India there was a reiteration of the principles, albeit in a different form, laid down by this Court in Dr. (Miss) Binapani Devi vs State of Orissa and by the House of Lords in Padfield vs Minister of Agriculture, Fisheries & Food that the executive should not arbitrarily or capriciously act and that the myth of executive discretion is no longer there.
Indeed, in Kraipak 's case (supra) it was observed: "The dividing line between an administrative power and a quasi judicial power is quite thin and is being gradually obliterated.
Under our Constitution the rule of law pervades over the entire field of administration.
Every organ of the State under our Constitution is regulated and controlled by the rule of law.
In a welfare State like ours it is inevitable that the jurisdiction of the administrative bodies is increasing at a rapid rate.
The concept of the rule of law would lose its vitality if the instrumentalities of the State are not charged with the duty of discharging their function in a fair and just manner.
The requirement of acting judicially in essence is nothing but a requirement to act justly and fairly and not arbitrarily or capriciously.
The procedures which are considered inherent in the exercise of a judicial power are merely those which facilitate if not ensure a just and fair decision.
In recent years the concept of quasi judicial power has been undergoing a radical change.
What was considered as an administrative power some years back is now being considered as a quasi judicial power.
" This Court pertinently drew attention to the basic concept of natural justice vis a vis administrative and quasi judicial enquiries, and stated that any decision, whether executive, administrative or judicial or quasi judicial, is no decision if it cannot be "just", i.e. an impartial and objective assessment of all the pros and cons of a case, after due hearing of the parties concerned.
In the light of these principles, we have to see whether the State Government acted in breach of the rules of natural justice in passing the impugned orders.
It is, however, strenuously urged on behalf of the State Government that on a true construction of the two circulars in question, while it was incumbent on the Divisional Committees to give all officers 843 and servants whose services were proposed to be determined on the ground of unsuitability, an opportunity of a personal hearing, no such duty was cast on the State Government.
We are unable to agree with this line of reasoning.
The first circular dated January 11, 1967 was all pervasive, and it covered all categories of officers and servants either provisionally absorbed under s.577(e) or temporarily appointed under s.577(ee), irrespective of their salary.
The Government policy was made quite clear in that circular, which we have quoted earlier.
At this stage, the functions of the Divisional Committees were to be purely recommendatory in nature.
The Committees had to make their selection of officers and servants suitable for absorption after an interview of all such officers and servants, and forward their recommendations to the Government, for finalising action in the matter of final absorption under s.112A.
The subsequent circular dated January 31, 1967, making a categorisation of the officers and servants concerned, into two groups, reserving the power of selection for final absorption to the State Selection Committee in case of all Centralised Services whose starting salary was Rs. 500/ and more, and entrusting the function to the Divisional Committees in case of those whose starting salary was less than Rs.500/ , was still subject to the Government policy already laid down.
It is, therefore, not right to suggest that the State Government was absolved of the "duty to hear" the officers and servants of the erstwhile Municipal Boards and other local authorities drawing Rs. 500/ and above All the officers and servants of the erstwhile Municipal Boards and other local authorities provisionally absorbed under s.577(e) or temporarily appointed under s.577 (ee) were therefore, entitled to be heard in the matter of their final absorption under s.112A read with r.6(2) (iii), irrespective of their salary.
The requirements of a fair hearing are fulfilled in the case of officers and servants of the erstwhile Municipal Boards and other local authorities drawing a salary of less than Rs. 500/ but not in the case of those drawing Rs. 500/ or more.
It is accepted before us that the appellant Ashfaq Hussain was called for an interview by the Divisional Committee.
The State Government in its return has placed material showing that he had a uniformly bad record and there were adverse entries in his character rolls for several years.
It is not disputed that Ashfaq Hussain had been called for an interview by the Divisional Committee.
We are not impressed by the submission that the adverse remarks were not put to him when he appeared before the Divisional Committee.
It is clear 844 from the two circulars of the State Government dated January 11, 1967 and February 23, 1967 that in all cases in which the services of an officer or servant were to be determined on the ground of his unsuitability, they were to be given an opportunity of personal interview by the Committee.
The whole purpose of the personal interview was that when it was proposed to declare such an official unsuitable for absorption, the Committee had to afford an opportunity to appear before it and clear up his position.
It is reasonable to presume that when the appellant, Ashfaq Hussain, was called for that purpose, the adverse remarks in his character rolls must have been put to him.
On an overall view of the record of service of Ashfaq Hussain, the Divisional Committee was not wrong in recommending to the Government to terminate his services, and the Government was within its rights in passing the impugned order of termination in regard to him.
In the case of the appellant Mohd. Rashid Ahmad, it however appears from the return filed by the State Government that no such opportunity was afforded to him before the State Government passed the impugned order dated July 18, 1967 terminating his services.
It is evident, no doubt, from the return filed by the State Government that the service record of the appellant was before the Government, on the basis whereof it was decided that he was unsuitable for being finally absorbed and also that the Secretary for Local Self Government in his note of July 10, 1967 recommended that he was not suitable for final absorption in the Centralised Services, but it is clear that the Minister for Local Self Government before passing the impugned order of termination dated July 11, 1967 did not give to the appellant an opportunity of a hearing.
The order of termination of his services passed by the State Government, therefore, suffers from a serious legal infirmity.
It was said, however, on behalf of the State Government that under s.107(1) of the Adhiniyam no appointment to a post carrying an initial salary of not less than Rs. 500/ per mensem, could be made except after consultation with the Public Service Commission, and that the Commission did not find the appellant fit for appointment as Executive Engineer, Municipal Corporation, Kanpur.
It was also pointed out that under section 108 the appellant could not hold the post beyond the period of one year.
It was, therefore, urged that the State Government was justified in terminating the services of the appellant as he could not be finally absorbed in the post of an Executive Engineer in the Centralised Services.
It was said that the post had to be advertised for filling up the vacancy as required under section 107 of the Adhiniyam.
We are afraid, the contention cannot be accepted.
845 Under section 112A (1) of the Adhiniyam, the State Government having by U.P. Palika (Centralised) Services Rules, 1966, constituted the Centralised Palika Services, the appellant Mohd. Rashid Ahmad, who was performing the duties and functions of the post of Executive Engineer under section 577(ee), was entitled to be considered, if found suitable, for absorption under s.112A(2).
Admittedly, the appellant was not heard in the matter of his final absorption.
It is also not in dispute that the procedure laid down in the U.P. Palika (Centralised) Services Rules, 1966, was not followed.
If the appellant was at all found fit for absorption, it was for the State Government next to decide the suitable post on which he could be absorbed.
The method of recruitment provided by r. 20 had to be followed.
Evidently, this has not been done.
In view of the fore going reasons, Civil Appeal No. 1724 of 1969 succeeds and is allowed, while Civil Appeal No. 1732 of 1971 fails and is dismissed.
There shall be no order as to costs.
P.B.R. C.A. 1724/69 allowed.
C.A. 1732/71 dismissed.

dataset_name: IN-Abs

summary/full:
Rule 6(2)(iii) If imposed a duty on State Government to act in a quasi judicial manner.
Rules of natural justice Applicability of.
The U.P. Nagar Mahapalika Adhiniyam 1959 as well as the U.P. Municipalities Act, 1916 empowered local bodies in the State to appoint their employees subject to certain regulatory control by the State Government.
In 1964 section 112A was added to the 1959 Adhiniyam empowering the State Government to make rules for the creation of one or more services to be known as Centralised Palika Services common to all the municipal corporations and municipal boards and prescribe the method for recruitment and conditions of service of persons appointed to any such service.
Section 69B which was added to the U.P. Municipalities Act, 1916 was in identical terms as section 112A. Section 577(e) of the Adhiniyam provided for provisional absorption of officers and servants of the erstwhile municipalities till they were finally absorbed in any centralised services created under the Act.
By section 577(ee) the Administrators of Boards etc., were authorised to make temporary appointments of officers and servants till substantive appointments were made and such officers and servants were treated as on deputation with the municipal corporations.
In exercise of the powers conferred under section 112A the State Government made the U.P. Palika (Centralised) Service Rules, 1966 which came into force on July 9, 1966.
Since r. 6 of the Rules was found to be contrary to the provisions of section 112A and section 69B, the U.P. Local Self Government (Amendment) Ordinance, 1966 (which later became an Act) was promulgated to validate the 1966 Rules.
Section 19 of the Act provided that the amendments made to the Rules might be given retrospective effect, limited to a period of one year from the commencement of the Ordinance.
Thereafter the U.P. Palika (Centralised) Services (Amendment) Rules, 1966 were passed by which r. 6 was repealed and re enacted with retrospective effect from July 9, 1966.
Clause (ii) of r. 6(2) empowered the State Government to pass a final order of absorption in respect of particular officers and servants of the erstwhile municipal boards if they were found suitable.
Clause (iii) provided that such orders had to be made on or before March 31, 1967.
827 Since the work of final absorption could not be completed by March 31, 1967, r. 6(2) (iii) was amended shifting the date to June 30, 1967.
But this amendment having been made to come into effect from April 1, 1967 the legal fiction created by cl.
(iv) of r. 6 that if no orders of final absorption were passed till March 31, 1967 the officer or servant concerned was to be deemed to have been finally absorbed, came into play.
Clause (iii) was, therefore, again amended shifting the date of passing the order from March 31, 1967 to August 31, 1967.
The rule was made with retrospective effect from July 9, 1966.
For the purpose of final absorption of all officers and servants who were found suitable in the two categories viz., those appointed under section 577(e) and section 577(ee) of the Adhiniyam, the State Government laid down a procedure.
It constituted Divisional Committees for making necessary recommendations to the State Government.
On January 11, 1967 the State Government issued the first Circular stating that all officers and servants whose services were proposed to be determined on the ground of unsuitability might be given an opportunity of personal interview by the Divisional Committees.
The Government divided the officers and servants into two categories, those getting salary above Rs. 500/_ and those getting salary below Rs. 500/ and provided that cases of each category were to be dealt with at different levels.
By this circular the Government re constituted the composition of the divisional Committees so far as the five municipal corporations which were created under the 1959 Adhiniyam were concerned and directed that these Divisional Committees should make selections for all Centralised Services except those whose starting salary was Rs. 500/ and above.
The selection for this category was to be made by the State Selection Committee.
With a view to secure a reasonable uniformity in the standards to be applied by the Divisional Committees in making the selection, the third Circular dated February 23, 1967 provided that the Committees should interview the official concerned to judge his suitability for absorption in the Centralised Services and that if it was proposed to declare an official to be unsuitable for absorption on the basis of adverse entries, the Divisional Committees should afford an opportunity to the official concerned to appear before it and clear up his position.
It was further provided that only those adverse remarks which were found to have been duly communicated to the official concerned might be considered against him.
Thus the procedure laid down was this: The recommendations of the Divisional Committees in respect of persons drawing salary less than Rs. 500/ would be scrutinised by the State Government in the Local Self Government Department and the necessary orders passed thereon while in respect of the second category officers drawing a salary above Rs. 500/ p.m. the Secretary to the Government Local Self Government Department would obtain the orders of the Minister concerned in passing the final orders.
The appellant RA was a permanent Assistant Engineer in the Development Board, Kanpur.
Before the coming into force of the Adhiniyam he was appointed as officiating Executive Engineer and since then he continued to function in that capacity on a purely temporary arrangement under section 577(ee).
The appellant AH was a Sanitary Inspector in the Municipal Board, Kanpur and 828 continued to hold that post.
He was later promoted temporarily as Assistant Engineer and he stood provisionally absorbed under section 577(e).
Writ Petitions filed by the appellants and others challenging the vires of the Rules were dismissed by the High Court.
On appeal to this Court it was contended that the appellants must be deemed to have been absorbed on March 31, 1967 by virtue of the fiction contained in Cl.
(iv) of r. 6(2), as originally enacted, because the amendment made to the Rule shifting the date of final absorption first from March 31, 1967 to June 30, 1967 and subsequently to August 31, 1967 were legally ineffective and (2) that the impugned orders were vitiated on account of the failure of the State Government to afford to the appellants an opportunity of being heard.
^ HELD: 1.
(a) The validity of the two amendments made by the State Government in r. 6(2) cannot be questioned.
Although a rule cannot be made with retrospective effect, the Legislature by enacting section 19 of the U.P. Local Self Government (Amendment) Act, 1966 expressly conferred powers on the State Government to make retrospective rules.
[837 D].
(b) It is well established that retrospective operation is not to be given to a statute so as to impain that existing right or obligation other than as regards matter of procedure.
If the enactment is expressed in a language which is fairly capable of either interpretation, it ought to be construed as prospective only.
But where it is expressly stated that an enactment shall be retrospective, courts will give it such operation.
It is competent for the Legislature by retrospective legislation to make the provision contained in an carrier enactment ineffective.
[838 F G] Quinn vs Prairiedate ; referred to.
(c) In considering the effect of repeal of an enactment followed by reenactment in the light of section 6 of the the line of enquiry would be not whether the new Act expressly keeps alive old rights and liabilities, but whether it manifests an intention to destroy them.
Any incompatibility in the provision has to be ascertained from a consideration of all the relevant provisions of the new law and the mere absence of a saving clause is by itself not conclusive.
[839 B C] In the instant case by the introduction of the new fictional date of absorption as August 31, 1967 there was a clear intention to destroy the earlier fictional date of March 31, 1967.
It would clearly be incompatible, on consideration of subsequent amendments for both the provisions i.e. the original clause (iii) fixing March 31, 1967 and the new clause (iii) fixing August 31, 1967 to operate simultaneously.
The effect of introduction of the new fictional date was to annihilate the earlier fictional date.
The appellants, therefore, did not stand automatically absorbed by the failure of the State Government to pass the necessary orders by March 31, 1967, as its powers stood extended by the subsequent amendment to August 31, 1967.
Before that date expired the State Government, in both cases, passed the necessary orders terminating the services of the appellants as they were not found fit for absorption.
[839 D F].
829 2.
(a) The entrustment to the State Government of the work of determining the suitability or otherwise of officers and servants of the erstwhile Municipal Boards and other local authorities for absorption in the newly created Centralised Services under section 112A, imposed a corresponding duty or obligation on the Government to hear the officers and servants concerned.
All such officers were, therefore, entitled to be heard in the matter of final absorption irrespective of their salary.
[841 A; 843 F].
(b) By virtue of the repealing provision contained in section 581 of the Adhiniyam, 1959 the various Municipal Boards and other local authorities constituted under the relevant Acts ceased to exist as a result of which the existing posts held by the officers and servants in these bodies stood abolished.
Consequent upon the abolition of the posts, all the officers and servants of the erstwhile local bodies lost their right to hold their posts.
The Adhiniyam, however, provided by section 577(e) and (ee) for provisional absorption or temporary appointment of these officers and servants till substantive appointments were made and these officers and servants were treated as on deputation with the Municipal Corporations.
Therefore, in the very nature of things the officers and servants provisionally absorbed under these sections could not be automatically absorbed in the newly created Centralised Services.
There had to be screening of all of them for determining their suitability for final absorption in the Centralised Services.
[840 A; B F] (c) The very nature of the functions entrusted to the State Government under r. 6(2) (iii) of the Rules implies a duty to act in a quasi judicial manner.
Unless the State Government 's orders conformed to the rules of natural justice, the orders were liable to be struck down as invalid.
[840 G 841 B].
(d) It is not correct to say that it is incumbent only on the Divisional Committees to give an opportunity of personal hearing and that the State Government was absolved of the duty to hear in respect of officers drawing Rs. 500/ and above.
The first Circular dated January 11, 1967 was all pervasive and the Government 's policy was made quite clear in it.
The second Circular dated January 31, 1967 was equally subject to the Government policy.
All the officers and servants of the erstwhile Municipal Boards and other local authorities were, therefore, entitled to be heard in the matter of final absorption irrespective of their salary.
[843 E, A, D].
In the case of AH on an overall view of the records it cannot be said that the Divisional Committee was wrong in recommending to the Government to terminate his services.
The Government was within its right in passing the impugned order of termination in regard to him.
[844 C] In regard to RA before passing the impugned order of termination of services, the Minister for Local Self Government did not give him an opportunity of a hearing.
The procedure laid down in the Centralised Services Rules was not followed.
The State Government could decide on the question of his absorption only after he was found fit but that has not been done.
The order passed by the State Government, therefore, suffers from a serious legal infirmity.
[844 D F].


judgement:
Civil Appeal No. 2335 of 1978.
Appeal by Special Leave from the Judgment and Order dated 14 7 78 of the Industrial Tribunal U.P. in Adjudication Case No. 15/77.
F. section Nariman, O. C. Mathur and D. N. Misra for the Appellant.
M. K. Ramamurthi, Jitendra Sharma and Janardan Sharma for the Respondent.
The Judgment of the Court was delivered by SHINGHAL J.
This appeal by special leave is directed against the order of Industrial Tribunal (III) U.P. at Kanpur dated July 14, 1978, deciding the following two preliminary issues which were raise by the Indian Oxygen Ltd. (hereinafter referred to as the Company) "(1) Whether present dispute is not an industrial dispute in the light of the objections raised by the employers in paragraph (1) of their written Statement? 914 (2) Whether the present Order of Reference is bad in law in the light of the objections raised by the employers in paragraph (1) of their Written Statement?" The Company employed some 5400 workmen in its establishment in West Bengal, Bihar, U.P., Assam, Punjab, Delhi, Maharashtra, Gujarat, Tamilnadu, Andhra Pradesh, Karnataka and Kerala.
There were several recognised trade unions of the workmen.
The All India Federation of Indian Oxygen Employees Union (hereinafter referred to as the Federal Union) was the recognised federation of some of the trade unions from 1973 onwards.
The Indian Oxygen Shramik Sangh (hereinafter referred to as the Shramik Sangh), which represented some of the workmen at Kanpur, was affiliated to the Federal Union.
There was another union known as the Indian Oxygen Karamchari Union (hereinafter referred to as the Karamchari Union) which was registered much earlier but its constitution was revised because of the merger of two other unions in it and was approved by the Registrar of Trade Unions on May 10, 1978.
It was not a member of the Federal Union.
The Federal Union raised a charter of demands in February 1973 of all India nature and a settlement was arrived at on June 22, 1973, according to which the demand for revision of pay scales was to be taken up for discussion at a mutually convenient date.
A similar settlement was made with the Shramik Sangh on November 22, 1973.
It was followed by negotiations and an order was made for the constitution of a Conciliation Board under section 3(d) of the U.P. (hereinafter referred to as the U.P. Act).
A memorandum of settlement was drawn up on April 30, 1974 between the Company and the Shramik Sangh.
It was agreed, interalia, that the question of revision of the dearness allowance of the Kanpur unit employees would be negotiated by the Company with the Federal Unit and/or the Union on or before April 1, 1975.
In the meantime, the Karamchari Union made on application on January 23, 1975, for the constitution of a Conciliation Board under section 3(d) of the U.P. Act and the Board was constituted by an order dated January 30, 1975.
The Company raised objections to the constitution of the Board on February 24, 1975, but the proceedings were commenced by the Board on February 26, 1975, and March 19, 1975 was fixed for appearance.
The Company however proceeded with its efforts for a settlement with the Federal Union, and entered into a settlement with it on June 30, 1975.
In order to bring it under the purview of the U.P. Act, the Shramik Sangh applied on 915 July 18, 1975, for the constitution of a Conciliation Board under that Act and a Conciliation Board was constituted on July 29, 1975.
A memorandum of settlement about the dearness allowance was drawn up with the Shramik Sangh on August 27, 1975; in accordance with rule 5A of the U.P. Industrial Disputes Rules, 1957, in Form IA, even though the dispute regarding the variable dearness allowance, which had been raised by the Karamchari Union earlier, was pending all the while.
The settlement with the Shramik Sangh made a specific reference to the all India Federation settlement which had been made on June 30, 1975.
That settlement with the Federal Union was in fact annexed to the settlement with the Shramik Sangh and was treated as a settlement under the U.P. Act.
The dispute regarding the variable dearness allowance which had been raised by the Karamchari Sangh by its application dated January 23, 1975 for the constitution of a Conciliation Board, did not however bear fruit.
Moreover the settlement which had been reached between the Company and the Federal Union was opposed by the Shramik Sangh and the Karamchari Sangh.
The Conciliation Officer did not therefore pass an order for the registration of the aforesaid settlement.
The Shramik Sangh, which had claimed dearness allowance according to the Kanpur cost of living index, however changed its stand and, as has been stated, it filed a memorandum of the settlement on August 27, 1975.
These facts are not in dispute before us.
It was in these circumstances that the State Government made an order on May 23, 1977, referring the dispute between the Company and the Karamchari Sangh for adjudication under section 4K of the U.P. Act.
The precise matter of dispute was the question whether the dearness allowance payable by the Company to its workmen should be revised and linked with the consumer price index for the industrial workers at Kanpur computed by the Labour Bureau at Simla and, if so, from what date and with what other details.
The Company filed a written statement in which it raised preliminary objections to the maintainability of the reference.
That gave rise to the two issues mentioned above and as they have been found against the Company by the impugned order of the Tribunal, it has come up in appeal to this Court.
It has been argued by Mr. Nariman, learned counsel for the Company, that it is implicit in the various provisions of the U.P. Act that a settlement arrived at before a Conciliation Board, by a union of a majority of the workmen, is binding on all the workmen.
Reference in this connection has been made to the Preamble and sections 916 2(t), 3(d), 6B, 6 1, 7(ii) of the U.P. Act, rules 5A and 40 and Forms 1A and III of the U.P. Industrial Disputes Rules, and to clauses (4) and (8) of the order dated December 3, 1957 made under section 3(d) of the U.P. Act.
It has further been argued that the power to enforce a settlement under section 7 of the U.P. Act shows that the settlement is meant to be binding on all the workmen.
It has also been argued that once a valid settlement is made, it is not permissible to refer a dispute (covered by it) for adjudication.
An attempt has been made to support that contention with reference to some decisions.
Learned counsel has gone to the extent of arguing that as there is no provision in the U.P. Act similar to sub sections (1) and (3) of section 18 of the , (hereinafter referred to as the Central Act), it is not permissible for the Karamchari Union to contend that the settlement which had been made with the Shramik Sangh will bind only the workmen who were members of that Sangh.
In the alternative, it has been argued that the State Government did not have the jurisdiction to make a valid reference under section 4K of the U.P. Act as the demand for variable dearness allowance had been settled through the Shramik Sangh in respect of a majority of the workmen of the Kanpur unit and was binding on the members of that Union.
Then it has been argued that the settlement which had been made with the Federal Union on June 30, 1975 was by itself and independently of the U.P. Settlement (with the Shramik Sangh), a settlement under section 18(1) of the Central Act and was binding on the members of the Shramik Sangh as it was affiliated to the Federal Union and for that reason also it was not permissible to make a reference for adjudication in respect of all the workmen including those who belonged to the Shramik Sangh.
It has further been argued that the settlement of June 30, 1975 with the Federal Union would have been operative even without the Shramik Sangh settlement and section 18(1) of the Central Act would be applicable to it as it was not a settlement during the course of conciliation proceedings and was binding on the Federal Union under section 36(1)(a) and (b) of the Central Act and it was not permissible to make a general reference covering even the workmen belonging to a union affiliated to the Federal Union.
It has been urged that the reference should have been restricted to those workmen who were not governed by the settlement of June 30, 1975 or that settlement should also have been referred to the Tribunal if it was felt by the State Government that it was not valid or fair.
Lastly, it has been argued that the settlements of June 30, 1975 and August 27, 1975 were in the nature of package deals arising out of collective and mutual bargaining and a reference relating to one term of the deals 917 was invalid.
Reference for this proposition has been made to Herbertsons Limited vs Workmen of Herbertsons Limited and others(1) and New Standard Engg.
Co. Ltd. vs M. L. Abhayankar and others(2).
Thus the question for consideration before us is whether the State Government had the authority or jurisdiction to make the order dated May 23, 1977, under section 4K of the U.P. Act referring the dispute regarding variable dearness allowance for adjudication to the Tribunal.
The two issues before the Tribunal related to that basic question and it will be sufficient for us to examine it in the facts and circumstances of this case and the law bearing on it.
Section 4K of the U.P. Act provides that where the State Government is of opinion that any industrial dispute exists or is apprehended, it may refer the dispute or any matter appearing to be connected with, or relevant to the dispute to a Tribunal.
Clause (1) of section 2 of that Act defines an industrial dispute to mean, inter alia, any dispute or difference between employers and workmen which is connected with the terms of their employment.
The expression "workmen" has been defined in clause (z) of section 2 to mean, speaking generally, "any person" employed in any industry in the capacity mentioned therein.
There is nothing in the Act to require that the dispute or difference should be raised by all the workmen of the industry, or by every one of them, or even by a majority of them.
It is enough if the controversy is between the employer on the one side and workmen on the other.
So also, there is nothing in the Act to require that the workmen raising the controversy should form a majority of the employees.
The reason appears to be that where it is found that the controversy affects, or will affect, the interest of workmen as a class, the law envisages that, in the interest of industrial peace, it should be examined and decided in one of the modes provided by it.
An individual dispute cannot however be said to be an industrial dispute unless of course the other workmen associate themselves with it.
No hard and fast rule can possibly be laid down in such circumstances to decide when and by how many workmen an industrial dispute can be raised within the meaning of the Act, or whether a minority union, or even an unrecognised union, can raise an industrial dispute.
It is enough if there is a potential cause of disharmony which is likely to endanger industrial peace, and a substantial number of workmen raise a dispute about it, for then it is permissible to take the view that it is an industrial dispute within the meaning of clause (1) of section 2 of the U.P. Act, and to refer it for adjudication to a Tribunal.
Reference in this connection may be made to the Tribunal 's finding 918 of fact that although the Karamchari Union was not a recognised union and it was not a member of the Federal Union, it had a "substantial number of workmen of the concern as its members.
" We have no doubt therefore that the State Government rightly took the view that the controversy raised by the Karamchari Union was an industrial dispute.
It cannot be gainsaid that the dispute in the present case was raised by the Karamchari Union and they made an application for the constitution of a Conciliation Board as far back as January 23, 1975, and the Board was constituted on January 30, 1975.
It will be recalled that the Company filed its objections before the Board on February 24, 1975, and the Board fixed March 19, 1975 for their consideration.
It is not in controversy before us that the conciliation effort met with failure, and the point for consideration is whether the State Government lost its power to make a reference under section 4K of the U.P. Act merely because of the settlement dated June 30, 1975 between the Company and the Federal Union under the Central Act and the settlement dated August 27, 1975 between the Company and the Shramik Sangh in the conciliation proceedings under the U.P. Act.
Section 18 of the Central Act deals with the binding effect of settlements and awards.
Sub section (1) of that section provides that a settlement arrived at by agreement between the employer and workmen otherwise than in the course of conciliation proceeding shall be binding on the parties to the agreement.
The settlement dated June 30, 1975, with the Federal Union did not therefore bind the Karamchari Union as it was not a party to it and was not affiliated to the Federal Union.
It is true that the Shramik Sangh made an application for the constitution of a Conciliation Board on July 18, 1975, and a Board was constituted on July 29, 1975.
That in fact led to a settlement with the Shramik Sangh on August 27, 1975.
But that took place under the provisions of the U.P. Act and Mr. Nariman has himself pointed out the proceedings in fact took place under rule 5A of the U.P. Industrial Disputes Rules, 1957 and the memorandum of settlement was prepared in Form 1 A. Sub section (3) of section 18 of the Central Act could not therefore be attracted to that settlement and there is no provision similar to it in the U.P. Act.
We have gone through section 7(ii) of the U.P. Act and the rules made thereunder, as well as the order dated December 31, 1957, on which much reliance has been placed by Mr. Nariman.
Clause (ii) of section 7 deals with the power of the State Government to 919 enforce, by order in the prescribed manner, for such period as may be specified, the whole or any part of an agreement reached in conciliation proceedings between the parties to an industrial dispute.
But the section, it appears, is mainly intended to deal with an order passed under any other enactment, and is meant to serve the purposes contemplated in section 3, namely, for securing the public safety or conveniences or the maintenance of public order or supplies and services essential to life of the community, or for maintaining employment etc.
It has not been urged before us that there was any such occasion for invoking section 7.
A mere reference to that section cannot therefore sustain the argument that the settlement dated August 27, 1975, became binding on all workmen including the Karamchari Union, which had nothing to do with it and was not even a party to it, and that the Union was precluded from raising an industrial dispute and the State Government was precluded from referring it for adjudication under section 4K of the U.P. Act.
Rule 5A of the U.P. Industrial Disputes Rules and the preparation of the memorandum of settlement in Form 1 A could not therefore justify the argument to the contrary.
So also, a reference to Form III of the Rules which provides that a person who contravenes or attempts to contravene, any provision of the State Government 's order shall be liable, on conviction, to fine or to imprisonment not exceeding three years or both, is hardly of any avail for obvious reasons.
In fact Mr. Nariman has not found it possible to support his argument about the binding nature of the settlement dated August 27, 1975, on the basis of such a penal provision in a form appended to a set of Rules, and we need not examine it any further.
We have gone through the order which has been made under section 3(d) of the U.P. Act, on paragraph 8 of which considerable reliance has been placed by Mr. Nariman.
It was made on December 31, 1957, and was to remain in force for one year under paragraph 15.
Even otherwise, paragraph 8 merely makes provision for impleading other workmen, or concerns, or a union, in proceedings before a Conciliation Board.
It provides that it would be enough to implead a union covering the majority of such "concern or workmen".
But such a provision cannot justify the argument that merely because a union consisting of a majority of workers can represent all the workmen, the settlement made in the Conciliation Board will bind those who are not parties to it.
As regards the alternative argument of Mr. Nariman that as the settlement dated August 27, 1975, was made by a "majority union", it was, at any rate, binding on the members of the Shramik Sangh, and 920 that the State Government had no jurisdiction to make a general reference under section 4K of the U.P. Act, it will be sufficient to say that no such bar could possibly be raised in the absence of any prohibitory provision in the law.
As has been stated, the Tribunal has found it as a fact that the Karamchari Union represented a substantial number of the workmen of the Company at Kanpur, and there is no reason why they should be debarred from raising a dispute for the benefit of all the workmen as a class.
It is well recognised, and cannot be disputed, that "collective bargaining" can take place between the employer and a bona fide labour union, and there is nothing on the record to show that the Karamchari Union was not a bona fide union.
In fact it may well be said that as the Shramik Sangh was an affiliated unit of the Federal Union, it was not permissible for it to make the application dated July 18, 1975, for the constitution of a Conciliation Board to resolve the dispute and to enter into the memorandum of settlement dated August 27, 1975.
The Tribunal has examined the file (No.391 of 1975) of the Conciliation Board case relating to the industrial dispute raised by the Karamchari Union on January 23, 1975, about the payment of the dearness allowance to the workers of the Kanpur unit according to the cost of living index for industrial workers at Kanpur, and the file of the other conciliation case relating to the similar dispute raised by the Shramik Sangh on July 18, 1975, and has stated the factual position as follows "It is clear from the latter file that the management of the Kanpur unit of the Company had applied on 29 7 75 to the Regional Conciliation Officer for the registration of the settlement reached between the company and the All India Federation of Indian Oxygen Employees Unions on 30 6 75 but on account of the pendency of C.B. Case No.391/75 some information was asked to be furnished by the company which the company did not furnish.
On the other hand, the representatives of the Shramik Sangh and the Kanpur unit of the company appeared before the Regional Conciliation Officer, Kanpur on 27 8 75 and submitted a brief memorandum of settlement making applicable to the Kanpur unit the settlement which had been reached between the company and the Federation on 30 6 75.
" It will thus appear that the Shramik Sangh entered into the settlement dated August 27, 1975 in collusion with the Company and that the Conciliation Board allowed the memorandum of settlement to be filed and finalised even though the Karamchari Union 's dispute dated January 23, 1975 was pending and no effort was made to make it a 921 party to the proceedings which were taken at the instance of the Shramik Sangh.
It is important to remember in this connection that although the settlement which had been made by the Federal Union on June 30, 1975 was opposed by both the Unions when it was placed on the notice board of the Kanpur unit, the Shramik Sangh changed its stand and filed a memorandum of settlement on August 27, 1975 endorsing the settlement which had been made with the Federal Union on June 30, 1975.
The Tribunal has also stated it as a fact that the settlement dated August 27, 1975 was not even put on the notice board of the Company.
If, therefore, the State Government decided to make a reference of the dispute to the Tribunal in these circumstances, it cannot be said that it did not apply its mind to the controversy or committed an illegality in doing so.
It has to be appreciated that it would not have been practicable for the State Government to exclude the workmen who were members of the Shramik Sangh (at Kanpur) from the scope of the reference under section 4K of the U.P. Act and to confine the dispute to the rest of the workmen, for that might have given rise to one pay structure for one section of the workmen (represented by the Karamchari Union) and another for the other workmen (represented by the Shramik Sangh).
At any rate, this was not a matter at the threshold, and is essentially for the Tribunal to examine on the merits of the controversy.
We have also considered the other argument of Mr. Nariman that as the settlements dated June 30, 1975 and August 27, 1975 were in the nature of package deals, and arose out of collective bargaining, it was not permissible for the State Government to make a reference to the Tribunal about one item of that deal, namely, that relating to the variable dearness allowance.
Our attention in this connection has been invited to the statement of the Company 's Personnel Manager V. John in which reference has been made to the nature and the contents of the package.
The point does not however relate to the jurisdiction or the maintainability of the reference under section 4K of the U.P. Act, for it is essentially a matter for the Tribunal 's examination with due regard to the evidence before it.
It appears from the record that the Company brought this aspect of the matter specifically to the notice of the State Government in its representation dated April 20, 1976, and it cannot be said that it was not before the Government when it made the impugned order of reference dated May 23, 1977.
At any rate, it cannot be said that there is any legal bar to the reference of the dispute regarding one particular item of a 922 package deal for adjudication by the Tribunal so as to vitiate the reference at the threshold.
We have gone through the two cases which have been cited by Mr. Nariman in this connection.
Herbertsons Ltd. (supra) was a case where all the workers of the Company had accepted the settlement and received the arrears and the emoluments according to it.
In fact it was in the facts and circumstances of that case that this Court took the view that it was not possible to scan the settlement in bits and pieces and hold some parts good and acceptable and others bad.
Even so, this Court expressed the view that if the objectionable part was shown to outweigh all the other advantages, the Court would be slow to hold the settlement unfair and unjust.
Herbertsons is therefore no authority for the argument that a part of a package deal cannot be the subject matter of a reference for adjudication by the Tribunal.
New Standard Engineering Co. Ltd (supra) was also a different case, for there the justness and fairness of the settlement was examined with reference to the situation as it stood on the date on which it was arrived at, and it cannot also avail the argument of Mr. Nariman about the illegality of a reference merely because it relates to a part of a package deal.
That is essentially a matter for the Tribunal to examine and adjudge on the merits of the reference.
Lastly, Mr. Nariman has argued that as the members of the Karamchari Union accepted the benefits of the settlement which had been made with the Federal Union on June 30, 1975, they were precluded from obtaining the order of reference dated May 23, 1977.
The argument is futile because the Tribunal has specifically stated in its order under appeal that even the settlement dated August 27, 1975 was not put on the Company 's notice board and the emoluments of the workmen were increased from July 1975.
It has further been stated that the members of the Karamchari Union "took the increase but under protest vide the Union 's letter dated 28 7 75 which is annexure D to the Workmen 's written statement.
" There is thus no force in the argument which have been advanced for the purpose of showing that the settlements dated June 30, 1975 and August 27, 1975 debarred the State Government from making the impugned order of reference dated May 23, 1977 under section 4K of the U.P. Act or that the dispute was not an industrial dispute and the order was otherwise bad in law.
The appeal fails and is dismissed with costs.
N.V.K. Appeal dismissed.

summary/full:
(14 of 1947) section 18 Applicability of.
The appellant company had its establishments in a number of States in the country.
In its establishment at Kanpur there were two unions, one of which, the Shramik Sangh, was affiliated to the Federal Union comprising of some of the trade unions in the various establishments while the other, the Karamachari Union, was not.
A demand relating to revision of dearness allowance among others, was raised by both the Unions at Kanpur.
The Shramik Sangh and the appellant entered into a settlement.
Karamchari Union which was not a party to the settlement, made an application to the State Government to constitute a conciliation board for reference of the dispute.
The Board was constituted.
In the meantime, however, to bring the settlement within the purview of the U.P. the Shramik Sangh applied for the constitutation of a conciliation board.
A conciliation board was constituted and the memorandum of settlement arrived at between the parties was registered even though the dispute on the same point raised by the Karamchari Union was pending before the Conciliation Board all the while.
The dispute raised by the Karamchari Union was, therefore, referred to a Tribunal under s 4K of the Act.
The Tribunal rejected the appellant 's contention that it had no jurisdiction to adjudicate on the dispute.
On appeal to this Court it was contended that it was implicit in the various provisions of the U.P. Act that a settlement arrived at before a Conciliation Board by a Union of the majority of workmen was binding on all the workmen and that in the absence of a provision like section 18 of the it was not permissible for the Karamchari Union to contend that the settlement would bind only the members of the Shramik Sangh and in any event reference of the dispute to a Tribunal was without jurisdiction.
Dismissing the appeal, ^ HELD: 1.
The State Government rightly took the view that the controversy raised by the Karamchari Union was an industrial dispute.
[922 G H] 2.
A reading of the relevant provisions of the U.P. , clearly shows that there is nothing in the Act to require that the dispute 912 or difference should be raised by all the workmen of the industry, or by everyone of them, or even by a majority of them.
It is enough if the controversy is between the employer on the one side and workmen on the other.
There is also nothing in the Act to require that the workmen raising the controversy should form a majority of the employees, the reason being that where it is found that the controversy affects, or will affect, the interests of workmen as a class, the law envisages that, in the interest of industrial peace, it should be examined and decided in one of the modes provided by it.
[917 D F] 3.
An individual dispute cannot, however, be said to be an industrial dispute unless the other workmen associate themselves with it.
No hard and fast rule can be laid down to decide when and by how many workmen an industrial dispute could be raised within the meaning of the Act, or whether a minority union or even an unrecognised union, could raise an industrial dispute.
It is enough if there is a potential cause of disharmony which is likely to endanger industrial peace, and a substantial number of workmen raise a dispute about it, for then it is permissible to view it as an industrial dispute within the meaning of clause (1) of section 2 of the Act, and to refer it for adjudication to a tribunal.
[917 F H] 4.
The settlement arrived at with the Federal Union did not bind the Karamchari Union as it was not a party to it and was not affiliated to the Federal Union.
Section 18 of the Central Act provides that a settlement arrived at by agreement between the parties otherwise than in the course of conciliation proceedings shall be binding on the parties to the agreement.
[918 E] 5.
Moreover, the settlement arrived at with the Shramik Sangh was under the provisions of the U.P. Act and, therefore, section 18 of the Central Act had no application.
There is no provision similar to it in the U.P. Act.
[918 G] 6.
There was no occasion for invoking section 7 of the U.P. Act.
That section is mainly intended to serve the purposes contemplated by section 3 of the Act, namely, securing the public safety or convenience or the maintenance of public order or supplies and services essential to the life of the community or for maintaining employment etc.
It cannot therefore be said that the settlement arrived at by the Sangh became binding on all workmen including the Karamchari Union which was not a party to it nor is there any other provision in the Act or the Rules making the settlement binding on the Karamchari Union.
Nor again can it be said that section 3(d) of the U.P. Act justifies the argument that merely because a union, consisting of a majority of workers, can represent all the workmen, the settlement arrived at before a conciliation board would bind those who are not parties to it.
[919 B, C, F G] 7.
In the absence of any prohibitory provision in the Act it cannot be said that the State Government had no jurisdiction to make a general reference under section 4K of the U.P. Act merely because the settlement was made by a majority union and was binding on the Shramik Sangh.
The Tribunal has found it as a fact that the Karamchari Union represented a substantial number of the workmen of the company at Kanpur, and there is no reason why they should be debarred from raising a dispute for the benefit of all the workmen as a class.
It is well recognised, that "collective bargaining" can take place between the employer and a bona fide labour union and there is nothing on the record to show that the Karamchari Union was not a bona fide union.
[920 A C] 913 In the instant case the Shramik Sangh entered into the settlement in collusion with the company and the Conciliation Board finalised the settlement even though the Karamchari Union 's dispute was still pending.
No effort was made to make it a party to the proceedings.
Although, to begin with, a both the Shramik Sangh and the Karamchari Union were opposed to the settlement earlier arrived at by the Federal Union the Shramik Sangh changed its stand and endorsed the settlement of the Federal Union when it was placed on the notice board.
The Tribunal also found as a fact that the settlement was not even put on the notice board of the company.
In these circumstances if the State Government had decided to make a reference of the dispute to the Tribunal it could not be said that it did not apply its mind to the controversy or committed an illegality in doing so.
[920 H 921 C] 8.
Even assuming that the earlier settlements were in the nature of a package deal arrived at between the company and the Federal Union it cannot be said that there was any legal bar to the reference of the dispute regarding one particular item of the package deal for adjudication by the tribunal so as to vitiate the reference.
The company brought this aspect of the matter specifically to the notice of the State Government.
The point does not, however, relate to the jurisdiction or the maintainability of the reference under section 4K for it is essentially a matter for the Tribunal 's examination with due regard to the evidence before it.
[921 F G] Herbertsons Ltd. vs Workmen of Herbertsons Ltd. & Ors. ; and New Standard Engg.
Co. Ltd. vs M. L. Abhyankar & Ors., ; held inapplicable.