U.P. Financial Corporation Employees Association vs U.P. Financial Corporation and Others

R. A. Sharma, J.—Whether the U.P. Financial Corporation (hereinafter referred to as the Corporation) can fix pay scales/remunerations of its employees without approval of the State Government and without amending the relevant regulations is the only question involved in the instant case.

The Government of U.P. appoints pay commission from time to time for revision of pay scales of the employees of Government and public undertakings of the State. In 1986-87 the State Government constituted a Committee, known as Samta Samiti (hereinafter referred to as the Committee) for revising the pay scales of its employees as well as the employees of public undertakings of the State. The Committee submitted its report recommending revision of pay scales. The State Government issued directions vide order dated 28.10.1989 read with order dated 30.1.1990 for implementation of the recommendations of the Committee. The Corporation accordingly on 30.3.1990 passed a resolution accepting the pay scales recommended by the Committee. However, later on the Corporation by majority passed another resolution on 23.2.1991 enhancing the pay scales of its employees over and above the pay scales recommended by the Committee. The Government, however, did not approve the enhancement and directed the Corporation not to pay the salary to its employees pursuant to its later resolution dated 23.2.1991. Being aggrieved by the said Government order the Petitioner, which is an association, formed by the employees of the Corporation, has filed this writ petition. During the pendency of this writ petition in this Court, the Government has approved substantially the resolution of the Corporation passed on 23.2.1991. An application was accordingly moved by the Government praying for dismissal of the writ petition as infructuous, but as the resolution of the Corporation passed on 23.2.1991 has not been accepted in toto by the Government, the Petitioner has pressed this writ petition for decision on merit.

Learned Counsel for the Petitioner has made the following submissions in support of the writ petition:

(i) The Corporation, being an autonomous body, is entitled to fix pay scales of its employees without the Government''s interference;

(ii) Regulations 7(2) and 63 of the U.P. Financial Corporation (Staff) Regulations (hereinafter referred to as the Regulations), which provide for fixation of pay scales of the employees of the Corporation, should be read down so as to confine their operation to the initial fixation of the pay scales;

(iii) The resolution of the Corporation dated 23.2.1991 should be treated an order under Regulation 4(b) dispensing with the compliance of the Regulation 7(2) and 63; and

(iv) Pay scale is not a matter of policy u/s 39 of the State Financial Corporation Act,1951 (hereinafter referred to as the Act) and, therefore, the Corporation is not bound by any direction or order issued by the Government in connection therewith.

Learned Additional Advocate General, appearing on behalf of the State of U.P., has disputed the above contentions. Parties have exchanged affidavits. We have heard the learned Counsel for the parties.

The Corporation has been established by the Government of U.P. u/s 3 of the Act. The provisions of the Act clearly indicate that although the Corporation to some extent has the autonomous status, but its entire financial functions and powers are controlled and regulated by the State Government. This is clear from the provisions of the Act referred to hereinbelow. The authorised capital of the Corporation is fixed by the State Government under Sub-section (1) of Section 4 of the Act. Under Sub-section (2) of the same section "the authorised capital shall be divided into such number of fully paid up shares of the same face value and shall be issued to the parties mentioned in Sub-section (3) at such time and in such manner" as the State Government may determine. Sub-section (3) of Section 4 empowers the State Government to determine the distribution of shares among the State Government, the Reserve Bank of India, the Development Bank, Scheduled Banks etc. Section 4A gives power to State Government in consultation with the Development Bank to specify the unissued capital of the Corporation for issue of special class of shares. u/s 6 of the shares of the Corporation are guaranteed by the State Government as to repayment of principal and payment of annual dividends. u/s 7 bonds and debentures issued by the Corporation are also guaranteed by the State Government. Sub-section (3) of Section 7 empowers the Corporation to borrow money from the State Government Section 8 enables the Corporation to accept from the State Government or, with the approval of the Stale Government, the Development Bank and the Reserve Bank, a local authority or any other person deposits repayable after the expiry of prescribed time. Section 9 vests general superintendence, direction and management of the affairs and business" of the Corporation in the Board of Directors. Section 10 provides for the constitution of the Board of Directors, according to which four Directors are nominated by the State Government, one Director is nominated by the Reserve Bank of India, and two Directors are nominated by the Reserve Bank of India, and two Directors are nominated by the Development Bank, and only one Director is elected in the specified manner. Clause (J) of the same section empowers the State Government to appoint a Managing Director of the Corporation. Section 13 gives power to the State Government to remove a Director. u/s 18 the Executive Committee of the Corporation consists of the Managing Director, who shall be the Chairman of the Committee and four Directors elected by the nominated Directors, two of whom shall be from the Directors nominated by the State Government. In view of the provisions contained in Section 22, the Corporation can fix its head office, other offices and the agencies at such places as may be specified by the State Government. Section 23 gives power lo the Corporation to determine by regulations the conditions of service and remuneration of its employees. Section 48 provides that regulation can be framed by the Board only after consultation with the Reserve Bank and with the previous sanction of the State Government. The State Government has also specific role u/s 35A in the matter of establishment of a special reserve fund. The report of the inspection made by the Development Bank is to be sent to the State and Central Governments u/s 37A. Under Sub-section (4) of the said section State Government has been empowered to issue instructions to the Corporation after considering the inspection report. u/s 38 of the Corporation has to furnish to the State Government. Development Bank and the Reserve Bank, such statement and return in such form as the Stale Government, Development Bank and Reserve Bank may require from time to time. Section 45 gives power lo the State Government to place the Corporation in liquidation.

It is thus apparent that the control of the State Government in the financial affairs of the Corporation is pervasive right from the time of its birth till the date of its death u/s 45 of the Act. The Corporation has limited freedom in the financial matters, it, therefore, does not have unfettered power to fix and revise the pay scales of its employees. Section 23, which permits the Corporation to determine by Regulations the pay scales of its employees is reproduced below:

Officers and other employees of the Financial Corporation.-The Financial Corporation may appoint such officers, advisers and employees as It considers necessary for the efficient performance of its functions, and determine, by regulations, their conditions of appointment and service and the remuneration payable lo them:

Provided that the State Government may, in consultation with and after obtaining the advice of the Development Bank, specify the class or categories of posts in respect of which appointments may be made by the Board on such remuneration and other conditions of service as the Board may determine, and no regulation made under this Act shall apply to such posts in respect of matters so determined by the Board.

Determination of conditions of service of the employees of the Corporation and the remuneration payable to them has to be fixed by regulations, which can be framed u/s 48 "after consultation with the Reserve Bank and with the previous sanction of the State Government." Sub-section (1) of Section 48 is also reproduced below:

Power of Board to make regulations-(1) The Board may, after consultation with the Reserve Bank and with the previous sanction of the State Government, make regulations not inconsistent with this Act and the rules made thereunder to provide for all matters for which provision is necessary or expedient or the purpose of giving effect to the provisions of this Act.

Corporation, therefore, cannot fix the pay scale/remuneration of its employees except by regulations. Regulations framed u/s 48 are of the nature of subordinate legislation and, therefore, they can be enacted only in the manner and subject to the conditions laid down by Section 48. Previous sanction of the State Government and the consultation with Reserve Bank are conditions precedent for framing these regulations. But the position is different, if a case falls under the proviso to Section 23, because in such a case the Corporation can make appointment in respect of such class or categories of posts as may be specified by the State Government on such remuneration, as the Corporation may determine. But the proviso is applicable only to a case where the Stale Government has specified categories of posts. It is not disputed that in the instant case, the proviso is not applicable.

The power conferred by an Act can be exercised from time to time as occasion requires. This is well known rule of interpretation contained in Section 14 of the General Clauses Act. Therefore, power to fix the pay scales of the employees conferred on the Corporation by Section 23 includes the power to fix/revise the pay scales from time to time. But such a power can be exercised by the Corporation subject to the conditions, as are contained in Section 23. Hence the Corporation can revise the pay scales of its employees only by regulations, which cannot be framed except with the previous sanction of the State Government.

The Corporation has framed Regulations u/s 48 of the Act. Regulation 7 which deals with the classification of the employees and their pay scales is as under:

Regulation No. 7.-Classification of permanent staff.-

(1) The permanent employees may be classified in the following categories:

(a) Class A-Officers.

(b) Class B-Assistants.

(c) Class C-Subordinate staff.

(2) The Board may fix, from time to time the number of posts in all categories. The pay scales of the Officers, the Assistants and the subordinate staff shall be as laid down in Appendix I.

(3) The procedure relating to recruitment and promotion on the various posts of different categories shall be as laid down in Appendix II to these regulations.

As per this regulation, the pay scales of the employees of the Corporation shall be such as are laid down in Appendix-I to the regulation. Regulation 63, which deals with the pay and allowances of the employees of the Corporation has also laid down that. "The scales of pay admissible to persons appointed to various category of posts in the service shall be as laid down in Appendix I." It is admitted by the learned Counsel for the parties that Appendix I is a part of the regulations. Therefore, while determining or revising the pay scales of the employees of the Corporation, the pay scales contained in the Appendix I have to be amended in the manner laid down by Section 48. The first contention of the learned Counsel for the Petitioner is accordingly rejected.

The second submission raised by the learned Counsel for the Petitioner deserve the same fate. Section 23 permits the Corporation to fix the pay scales of its employees by regulations. Regulations can be framed u/s 48 with the previous sanction of the State Government. Power to fix the pay scales includes the power to fix-revise them from time to time. When Section 23 requires fixation of pay scales by regulation, it is not open to the Corporation to act contrary to the said section. Regulations 7(2) and 63, being in conformity with Section 23, cannot be read down as suggested by the learned Counsel for the Petitioner so as to deviate from the mandate contained in the said section. In this connection, learned Counsel for the Petitioner has further contended that in the past the pay scales have not always been revised by making corresponding amendment in Appendix. Learned Counsel for the Petitioner has further stated that the amendments in the Appendix were made only twice in the past. Learned Counsel for the Respondent, has disputed the above contention. But it is not necessary to go into this question because presuming that it is so, the statutory obligation of fixation of remuneration of the employees by means of regulation is not dispensed with. That apart, it is not the case of the Corporation that in the past, the pay scales of its employees were fixed by it without sanction of the State Government.

The next contention has also to be rejected. Resolution of Board dated 23.2.1991 cannot be treated to be an order under Regulation 4(b), dispensing with the application of Regulations 7(2) and 63 as well as the Appendix appended thereto. Regulation 4(b) is reproduced below:

4(b). If in the opinion of the Board operation of any regulation causes undue hardship to any employee and it is imperative to relax or dispense with operation of such regulation, the Board may, in exceptional circumstances, relax or dispense with application of that regulation to such extent and subject to such terms as it may deem proper provided such relaxation does not jeopardise or adversely affect the interest of the Corporation or any other employee.

Where a power is to be exercised and or a duty is to be discharged subject to certain conditions and in the manner laid down by the Act, it is not open to the authority concerned to exercise the power or discharge the duty in any other manner in disregard of the statutory condition. u/s 23 of the Act, the Corporation is bound to fix the pay scales of its employees by means of regulations. Therefore, it is not open to the Corporation to fix the pay scales except by regulations. Dispensing with Regulations 7(2) and 63 and the Appendix appended thereto will result in fixation of the pay scales in contravention of Section 23. That apart, there is no resolution of the Corporation dispensing with the operation of the aforesaid regulations and the Appendix appended thereto. In the absence of any such resolution, no such inference can be drawn.

The last submission pertains to Section 39 of the Act, which has given power to the State Government to issue instructions to the Corporation on the question of policy. This section is reproduced below:

Power to give instructions to Financial Corporation on questions of policy.-

(1) In the discharge of its functions, the Board shall be guided by such instructions on questions of policy as may be given to it by the State Government in consultation with and after obtaining the advice of the Development Bank.

(2) If any dispute arises between the State Government and the Board as to whether a question is or is not a question of policy, the decision of the State Government shall be final.

(3) If the Board falls to carry out the instructions on the question of policy laid down by the State Government under Sub-section (1) of this section or the instructions given to the Board under Sub-section (4) of Section 37A, the State Government shall have the power to supersede the Board and appoint a new Board in its place to function until a properly constituted Board is set up and the decision of the State Government as to the grounds for superseding the Board shall not be questioned in any Court.

Whether the matter relating to the fixation and revision of pay scales of the employees of the Corporation is a matter of policy on which the Government can issue instructions to the Corporation is an issue on which both the parties have taken different stands. According to the learned Counsel for the Petitioner, the revision of pay scales is not a question of policy and, therefore, the Government cannot issue instructions in this regard. In his support, the learned Counsel has placed reliance on a decision of the Rajasthan High Court in Writ Petition No. 669 of 1988, decided on 6.9.1988. The stand of Sri. Rakesh Dwivedi, learned Additional Advocate General, representing the State, on the other hand, is that fixation of pay scales is a matter of policy, regarding which the State Government can issue instructions. Mr. Dwivedi has further contended that the aforesaid decision of Rajasthan High Court does not lay down the correct law. It is not necessary for this Court to express any opinion on flits question, because even if we accept the contention of the learned Counsel for the Petitioner, no relief can be granted to the Petitioner, because pay scales cannot be fixed and revised by the Corporation without amending the regulation and the Appendix appended thereto.

For the reasons given above, this writ petition is dismissed, in view of the facts and circumstances of the case, there shall be no order as to costs.