Kedar Nath Sethi vs Life Insurance Corporation of India and another

J. K. Tandon, J.

The petitioner Sri Kedar Nath Sethi is an employee of the Life Insurance Corporation of India since its inception. The history which preceded the constitution of the Corporation in so far as it is relevant, there is that there used to be a number of insurance companies in the country which carried on life insurance business. This business which, has been called as controlled business was as a result of the nationalisation transferred and vested in the Corporation. The employees of these erstwhile companies were also transferred in the process under the employment of the Corporation.

Section 11 of the Life Insurance Corporation Act which made provision for the transfer of the services of such employees laid clown that every whole time employee of an insurer, i.e. an erstwhile insurance company whose controlled business had teen transferred to and vested in the Corporation and who was employed by the insurer wholly or mainly in connection with his controlled business immediately before the appointed day i.e. the 1st September, 1956, shall, on and from that day become an employee of the Corporation.

The section further laid down that such employee shall hold his office in the Corporation by the

same tenure, at the same remuneration and upon the same terms and conditions and with the same rights and privileges as to pension and gratuity and other matters ay he would have held the same on the appointed day if the said Act had not been passed and further that he shall continue to do so unless and until his employment in the Corporation is terminated or until his remuneration, terms and

conditions are duly altered by the Corporation.

In pursuance of the above provision Sri Sethi became an employee of the Corporation. It is material to point out just now that according to the terms and conditions applicable to him his salary was below Rs. 500/. This will be relevant in considering the applicability of certain regulations which in due course were promulgated by the Corporation governing the conditions of service etc. of the staff working under it.

Sri Sethi held the post of Inspector and as such belonged to the field staff. In the performance of his duty he had to take work from agents and also received premia from policy holders etc. towards policies held or proposed by them. It is alleged that Sri Sethi in the performance of his said duty received two items of Rs. 45.86 nP. from one Dr. Kapoor whose life policy had lapsed on account of nonpayment but instead of paying the said amounts into the Corporation he retained them and deposited the same in his personal account. A relative chargesheet accusing him of misappropriating these amounts was therefore delivered to him on the 15th of July, 1959. A second chargesheet accusing him of misappropriating four other items was also given to him on the 29th August J959. The charge against him in brief was that he misappropriated those amounts, hence was guilty of misconduct and deserved to be punished.

The above chargesheets were given to him by the Zonal Manager Sri T.S. Swaminathan who further suspended him till the completion of the inquiry against him. The inquiry was then entrusted to Sri C.N. Sharma, an officer of the Corporation, who is respondent no. 2.

It is not necessary for us to state here all these facts which have been alleged in the case by the two parties since they have come to an agreement before ns wherefore the petitioner will be allowed by the present Zonal Manager a reasonable opportunity to show cause on the charges delivered to him including an opportunity to adduce such further evidence or to crossexamine any witnesses already examined as he should consider necessary before the final action is decided against him.

In view of this agreement it is no longer necessary for us to consider that part of the case which concerns the inquiry by Sri C.N. Sharma and the competence of that officer to hold the same. The parties, however, agreed that the Zonal Manager will not be disentitled from looking into the report of Sri Sharma should he so consider it necessary but in that case he will give an opportunity to the petitioner to urge whatever he has to urge against it and to contest it. Thus out of the several reliefs which the petitioner has asked the controversy which we are called upon to decide is with regard to the suspension order dated the 15th July, 1959, made by the Zonal Manager.

The petitioners attack on the validity of the suspension order is twofold. Firstly, he claims that as an employee of an erstwhile insurer he was governed in the matter of his employment by the same terms and conditions etc. as were applicable to him while in the employ of the insurer and that, therefore, his employment could be terminated by the Corporation as such and not by any subordinate authority. In this manner he claims that the Zonal Manager could not make the impugned order while the Life Insurance Corporation of India (Staff) Regulations. 1958, framed by the Corporation in the purported exercise of its power under clause (b) of SubSection (2) of Sec. 49 were in excess of its authority under the said provision. Secondly, he has contended that even the Staff Regulations do not confer authority on the Zonal Manager to make the order of suspension, in his case in view of subclause (e) of clause (b) of Regulation 9 which declared the Divisional Manager to be his appointing authority and clause (4) of Regulation 41 authorised the Divisional Manager to pass such an order.

It will be necessary in the course of discussion to refer to the following provisions of the Life Insurance Corporation Act. SubSection (1) of S. 11 to which reference exists earlier also made provision for transfer of services of employees of the erstwhile insurers. SubSection (2) of the same section gave authority to the Central Government to reduce the remuneration etc. of such employees where it was satisfied that it was necessary so to do for the purpose of securing uniformity in the case of remuneration and other terms and conditions of service applicable to them. Admittedly the Staff Regulations, 1956, have no reference to this provision.

The next provision to be referred is S. 18 which is thus :

"18. (1) The central office of the Corporation shall be at such place as the Central Government may, by notification in the Official Gazette, specify.

(2) The Corporation shall establish a zonal office at each of the following places, namely, Bombay, Calcutta, Delhi, Kanpur and Madras, and, subject to the previous approval of the Central Government, may establish such other zone offices as it thinks fit.

(3) The territorial limits of each zone shall be such as may be specified by the Corporation,

(4) There may be established as many divisional offices and branches in each zone as the Zonal Manager thinks fit".

The next relevant provision is to be found in S. 22 which is as follows :

"22. (1) The Corporation may entrust the superintendence and direction, of the affairs and business of a zonal office to a person, whether a member or not, who shall be known as the Zonal Manager and the Zonal Manager shall perform all such functions of the Corporation as may be delegated to him with respect to the area within the jurisdiction of the zonal office".

(2) ........

(3) ......."

Then we come to Sec. 49 SubSection (1) of this section is

"The Corporation may with the previous approval of the Central Government, by notification to

the Gazette of India, make regulations not inconsistent with this Act and the rules made thereunder to provide for all matters for which provision is expedient for the purpose of giving effect to the provisions of this Act".

And SubSection (2) provides :

"In particular, and without prejudice to the generality of the foregoing power, such regulations may provide for

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

(b) the method of recruitment of employees and agents of the Corporation and the terms and conditions of service of such employees or agents.

(bb) the terms and conditions of service of persons who have become employees of the Corporation under SubSection (1) of S. 11.

The Staff Regulations 1956 were prepared in that year and the Preamble thereto read thus :

"Whereas it is necessary to frame regulations defining the terms and conditions of service of the staff of the Life Insurance Corporation of India, the Corporation, in exercise of the powers vested in it under clause (b) of SubSection (2) of S. 49 of the Life Insurance Corporation Act 1956, and with, the previous approval of the Central Government, is pleased to make the following regulations".

Then follow the several regulations but we shall be concerned primarily with two only, viz. regulations 9 and 41. Regulation 9 declared the Divisional Manager, since the petitioner was employed in the Branch Office in the Divisions to be his appointing authority. And Regulation 41 in making provision for the imposition of penalties upon delinquent employees lays down in clause; (2) that, except the1 punishment or reprimand or Censure, other penalties including dismissal and reduction to a lower post can be ordered by the appointing authority after a charge has been formulated in writing and an opportunity has been given to the delinquent servant to show cause against it. Under clause (4) the power of suspension during inquiry has been made exercisable by an officer who is empowered to pass the final order under the regulation. The final order, it is conceded, can be made in the case of petitioner by the Divisional Manager.

In the view that we are inclined to take about Section 22 of the Act, qua the Zonal Managers power to suspend an employee working in his zone, it should not be necessary to enter into the controversy raised by the petitioner that the Staff Regulations are invalid and in excess of the power vested in the Corporation in their applicability to the employees of the erstwhile insurers hereafter referred to as transferred employees. But since the question has been canvassed at length before us we consider it our duty to record a finding on that question also.

Even a cursory reading of SubSection (1) of S. 11 of the Act will convince that the transferred employees were to continue in service of the Corporation on the old terms and conditions until these were duly altered by the Corporation. That is the Corporation possessed the power to alter those terms and conditions which once they were altered ceased in favour of the new terms and conditions to be in force in their earlier shape. The learned counsel for the petitioner has conceded that SubSection (1) of S. 49 conferred power upon the Corporation to make regulations to provide for all matters for which it considered expedient for giving effect to the provisions of the Act.

The provision in SubSection (1) of S. 11 that the old terms and conditions will continue until new terms and conditions are duly laid by the Corporation, read with the above provision in. SubSec. (1) of S. 49, authorised the Corporation to provide by appropriate regulations new terms and conditions. Any regulations in that behalf will, indeed, be for the purpose of giving effect to the provisions of the Act and, therefore, within the competence of the Corporation to make.

There is no dispute or controversy so far. The Staff Regulations, as will be clear from the Preamble quoted earlier were framed in the purported exercise of the power under clause (b) of SubSection (2) of S. 49. This clause authorised the making of provision for the method of recruitment of employees and agents of the Corporation and the terms and conditions of service of such employees and agents. A transferred employee, whose services came under the Corporation by reason of SubSec. (1) of S. 11, was such is the argument of the petitioner not an employee recruited by the Corporation; therefore clause (b) which, according to him, made provision for that category of employees alone failed to authorise the Corporation to make regulations regarding the terms and conditions of transferred employees.

While it may be said with some force that a transferred employee will not be an employee recruited by the Corporation but it may not be necessary to enter further into that controversy since, we are unable to hold that the words "such employees or agents" appearing in clause (b) have reference to those employees only who may have been recruited by the Corporation subsequently. The first part of clause (b) does provide for the making of regulations about the method of recruitment of employees and agents of the Corporation but the later part and particularly the word "such", preceding the words "employees or agents" do not themselves refer merely to employees and agents so recruited.

The word "such" refers to employees and agents of the Corporation and not to employees and agents of the Corporation who might have been recruited by the Corporation. Had the intention been to restrict the reference to recruited employees only the correct description would have been something like this : "and the terms and conditions of service of employees or agents so recruited." The learned counsel for the petitioner has not disputed that the Corporation possessed the power to make regulations providing for the terms and conditions of transferred employees also.

Until clause (bb) was inserted in SubSection (2) by the Life Insurance Corporation (Amendment) Act 1957 (Act 17 of 1957) there was, apart from clause (b), no specific provision for making regulations in the case of transferred employees. Once it is conceded that the Corporation possessed authority to make regulations in their case too the purpose of the enactment will be advanced by giving

to clause (b) the interpretation that the power in it to lay down the terms and conditions of employees and agents of the Corporation was not limited to the case of recruited employees only but was available in the case of transferred employees as well.

That this, indeed, was the intention of the Legislature too is confirmed by the Amendment Act of 1957. In making this amendment which was enacted with retrospective effect the amending Act expressly said that the new clause shall be and shall be deemed always to have been inserted. In, the Statement of Objects and Reasons it was again said (See the Gazette of India Extraordinary, part II, dated the 20th May, 1957, Page 174) that Sec. 49(2) was being amended to make it clear that the power conferred by clause (b) of SubSection (2) of S. 49 was available in the case of all employees whether recruited by the Corporation or taken over on its incorporation.

The relative bill of which the objects and reasons were in a sense a port had thus been introduced to remedy and remove supposed doubts in the language of clause (b) when actually the legislative intention was to cover the cases both of the recruited employees and transferred employees. As was held by their Lordships of the Supreme Court in M.K. Ranganathan v. Govt. of Madras, (S) AIR 1955 SC 604 :

"The statement of objects and reasons is certainly not admissible as an aid to the construction of a statute. But it can be referred to for the limited purpose of ascertaining the condition prevailing at the time which actuated the sponsor of the bill to introduce the same and the extent and urgency of the evil which he sought to remedy." Clause (b) which got into the body of the Act cannot be used to show that clause (b) did not apply to the case of transferred employees. In fact it went to prove that it actually so applied but any doubts in that behalf were removed.

In our opinion, therefore, clause (b) already covered the case of transferred employees and cl. (bb) has been introduced simply for the sake of ending all doubts which otherwise might have existed in that behalf.

There is another reason also on account of which we have no doubt that the Corporation possessed the necessary authority to make the regulations in the case of transferred employees also. The main power to make regulations is derived under SubSec. (1), SubSection (2) of S. 49 in stating the various matters upon which regulations may be made is illustrative only. The power itself, and with which we are concerned, to make regulations belongs under SubSection (1). The words "such regulations may provide for" in SubSection(2) clearly point out that the regulations providing for the matters enumerated in clauses (a) to (m) will still be made under SubSection (1).

The matters which are stated in SubSection (2) are some only of the matters for which provision may be expedient for the purpose of giving effect to the provisions of the Act, but they are not all those matters for which provision can be made. SubSection (1) of Sec. 11 is, indeed, one of the matters for which provision is necessary for giving effect to the provisions of the Act. The list of matters in SubSection (2) is thus neither descriptive nor exhaustive. It, on the other hand, is illustrative.

In order to find out whether the Corporation, is competent to make regulations on a particular subject or matter the test is not to discover the particular matter in the various items contained in SubSection (2) but to look to the Act itself. And if the Act has contemplated provision by regulation such a matter, it will be open to. the Corporation in exercise of the power given to it by SubSection (1) to make regulations for giving effect to it.

The Priyy Council in the case of Emperor v. Sibnath Banerji, AIR 1945 PC 156 considered a similar provision in the Defence of India Act, 1939 which conferred power on the Central Government to make rules for securing the defence of British India (as it then was), the public safety, the maintenance of public order or the efficient prosecution of war, or for maintaining supplies and services essential to the life of the community. Subsection (2) of Sec. 2 of that Act, which is essentially on the same, lines as SubSection (2) of Sec. 49 of the Life Insurance Corporation Act 1956 and enumerated a number of matters on which the Central Government might without prejudice to the generality of the power conferred by SubSection (1) make rules, came up for consideration. Reversing the decision of the Federal Court it was held :

"The function of SubSection (2) of Sec. 2 is merely an illustrative one; the rulemaking power as conferred by SubSection (1), and the rules which are referred to in the opening sentence of SubSection (2) are the rules which are authorised by, and1 made under SubSection (1); the provisions of SubSection (2) are not restrictive of SubSection (1)."

The above decision was noted with approval by the Supreme Court in the case of Santosh Kumar v. State, AIR 1951 SC 201. This was a case under the Essential Supplies (Temporary Powers) Act, 1946. Sec. 3 of this Act authorised the Central Government to make orders for maintaining or increasing supplies etc. of essential commodities : SubSection (1) conferred the general power in that behalf while SubSection. (2) provided that without prejudice to the generality of the powers conferred; by SubSection (1) an order made thereunder may provide for the several matters stated in SubSection (2).

Section 49 of the Life Insurance Corporation Act is essentially similar to Sec. 3 of the Essential Supplies (Temporary Powers) Act 1946. In either case there is reference, though in slightly different terms, to an order made under SubSection (1). The learned Judges approving the decision in Sibnath Banarjis case, AIR 1945 P.C. 156 held that the matters specifically enumerated in SubSection (2) were merely illustrative, the order itself is precisely under SubSection (1). Now since the impugned regulations, though purporting to have been made under clause (3) of SubSection (2) of Sec. 49 of the Act are really made under SubSection (1); thus if SubSection (1) gives power to the Corporationa fact not disputed to make regulations in the case of transferred employees also, they will be within the competence of the Corporation.

An aspect on which some stress was laid and which also prevailed with the learned Chief Justice in the case of S.K. Chatterji v. Divisional Manager, Life Insurance Corporation of India, Lucknow Division Civil Misc. Appln. No. 248 of 1957 (O.J.) D/1721959 (All) was how far the reference in the preamble to the regulations to clause (b) of SubSection (2) of Sec. 49 affected their validity. There are two answers to this question. One is that according to the conclusion we have reached about the true meaning and scope of clause (b) the same covered the case of transferred employees as well.

The second answer is, supposing for a moment that clause (b) does not cover their case, that reference to that clause Will not affect the validity of the order which has to be considered on its substance and not its form. Their Lordships of the Supreme Court observed with approval in the case of P. Bala. kotaiah v. Union of India, AIR 1958 SC 232 the it when an authority passes an order which is within its competence it cannot fail merely because it purports to be made under a wrong provision if it can be shown to be within its powers under any other rule and that the validity of an order should be judged on a consideration of its substance and not its form. Again the Supreme Court in the case of L. Hazari Mal Kuthiala v. Incometax Officer. Special Circle, Ambali Cantt, (AIR 1961 SC 200) held :

"The exercise of a power will be referable to a jurisdiction which confers validity upon it and not to a jurisdiction under which it will be nugatory.

"Where the Commissioner of Incometax when transferring a case from Patiala to Ambala purported to act under Sec. 5(5) and (7A) of the Indian Act, while he should have acted under Sec. 5(5) of the Patiala Act, the fact that he referred to the Indian Act does not make the action of the Commissioner as one without jurisdiction."

In the above case the reference was to a provision in an entirely different Act which further was passed by different Legislature when it should have been to the relative provision in the Indian Incometax Act, still the exercise of the power was upheld as its exercise will be referable to a jurisdiction which confers validity upon it and not to a jurisdiction under which it will be nugatory.

Therefore, assuming for a moment that clause (b) of SubSection (2) of S. 49 of the Life Insurance Corporation Act failed to give the necessary authority to the Corporation to make the impugned regulations in the case of transferred employees, these regulations must be held to have been made, despite the wrong reference, to the jurisdiction vested in the Corporation under SubSection (1).

We have been referred in the course of arguments to the decision of the then learned Chief Justice in S.K. Chatterjis case where he held that these regulations were inapplicable to transferred employees because clause (b) failed, to authorise the Corporation to make the same in their case. Naturally we have carefully considered the view held by the learned Chief Justice but with profound respect we cannot agree with him. The aspect that the regulations were framed under SubSection (1) of S. 49 and not under any provision in SubSection (2) was not placed before him.

The stress in the case before him was whether clause (b) on its language covered the case of transferred employees and he held the view, with which also we respectfully disagree, that the clause was inapplicable to transferred employees. Disagreeing with the above decision we are of the opinion that the Corporation has the power to make regulations in the case of transferred employees and further that the impugned regulations are applicable to them.

We may now revert to a consideration of the question whether the suspension order by the Zonal Manager was within his competence. The learned counsel for the Corporation has tried to support it on two independent grounds. Firstly, he has relied on S. 22 of the Life Insurance Corporation Act, 1956, which armed the Zonal Manager with the power of superintendence and direction over the Zonal, office and secondly on Regulation 9 read with Regulation 41.

The relevant portion of S. 22 has been quoted earlier and it will appear from it that the superintendence and direction of the affairs and business of a zonal office can be entrusted by the Corporation to the Zonal Manager. That such an entrustment has been made in favour of the Zonal Manager in question is not in dispute before us. What is contested is whether the Zonal Manager will by reason of the superintendence and direction entrusted to him possess tile power to suspend an employee in a branch office to which office the petitioner happened to be attached.

The scheme of the Life Insurance Corporation Act in the matter of management is to be found in Chapter V of the Act. Section 18 makes provision for the establishment of Zonal offices one of which is Kanpur. It also makes provision for territorial delimitation of the limits of each Zone and lastly provides in SubSection (4) that there may be established as many Divisional Offices and branches in each zone as the Zonal Manager thinks fit. In S. 22 provision exists for the entrustment of the superintendence and direction of the affairs and business of the Zonal office in the Zonal Manager.

The learned counsel for the petitioner contended that S. 22 while conferring power of superintendence and direction on the Zonal Manager confined it to the establishment of the zonal offices. In other words, a branch office and for the matter of a Divisional Office which are separate units do not, therefore, enter into the superintendence and direction of the zonal Manager. A zonal office is established for the territory comprised in the zone. A branch office and a Divisional office is a part of the zone and are further instituted by the Zonal Manager as a step or the due management of in zonal office. The expression "zonal office" in S. 22 will, therefore, not only include the establishment known by that name but also the establishment attached to every subordinate office controlled by the zone.

The power of superintendence and direction given to the Zonal Manager by this section will thus, extend to all administrative matters concerning

the zone including the subordinate office. Since the Zonal Manager is entrusted with the affairs and business of the zonal office he has a legal duty cast upon him to see that the affairs are conducted properly and in accordance with law. If any employee or servant acts in a manner which the Zonal Manager considers is detrimental or injurious to the affairs and business which is entrusted to his superintendence and direction he will certainly be within his powers to take such action as is deemed suitable by him. The suspension of an employee pending inquiry into charges against him is certainly a matter which he will be competent to order. Therefore, upon a reading of Section 22 itself we are satisfied that the Zonal Manager had the power to make the suspension order. At the same time, we have not been shown or convinced that the order passed by him was otherwise invalid.

In the above view of the matter it is not necessary for us to discuss the second ground on which the learned counsel for the Corporation has supported the particular order.

In view of the above discussion the suspension order cannot be held to be invalid. In the result, therefore, the relative relief asked by the petitioner cannot be granted. As to that part of the ducted by respondent No. 2 the parties have an case which concerned the inquiry on the charges covered at a mutual arrangement which has been reproduced in an earlier part of this judgment. We need, therefore, make no further order than direct the respondents to give effect to the arrangement before mentioned arrived at between them. No order is made as to costs. The stay order is withdrawn.

Order accordingly.