Supreme Court of India
NATIONAL INSURANCE CO. LTD.versusGENERAL INSURANCE DEV. OFFICERS ASSON. & ORS.
- Citation
- 2008 INSC 452
- Decided
- 3 April 2008
- Disposal
- Disposed off
- Bench
- ARIJIT PASAYAT
Holding
The 2003 Amendment Scheme is legal and within the Central Government's power under Section 17‑A of the General Insurance (Business Nationalization) Act, 1972.
Summary
The Supreme Court examined the legality of the General Insurance (Rationalisation of Pay Scales and Other Conditions of Service of Development Staff) Amendment Scheme, 2003, which altered cost‑ratio calculations, incentive structures, transfer policies and career prospects for Development Officers. The petitioners argued that the amendment was ultra vires, caused financial loss, and violated service conditions, while the respondents contended that the Central Government had authority under the newly inserted Section 17‑A of the General Insurance (Business Nationalization) Act, 1972. The Court held that the amendment was valid because Section 17‑A expressly empowers the Central Government to amend schemes relating to pay‑scale rationalisation, and the retrospective effect was a permissible legislative device. Consequently, the appeals were allowed, the transfer petitions were disposed of, and the writ petitions were dismissed, subject to directions on transfers and promotion policy.
Issues considered
- The 2003 Amendment Scheme is ultra vires the General Insurance (Business Nationalization) Act, 1972.
- Whether Section 17‑A confers valid power on the Central Government to amend the scheme.
- Whether the amendment violates the service conditions and causes unlawful financial loss to Development Officers.
- Whether the transfer provisions and career‑prospect provisions are legally valid.
- Whether the retrospective effect of the amendment is constitutionally permissible.
Legislation cited
Subjects
General Insurance (Business Nationalization) ActSection 17-Apay‑scale rationalisationservice conditionsdevelopment officerstransfer policyretrospective legislationultra viresdelegation of legislative power
Judgment
[2008] 5 S.C.R. 1087
~~
NATIONAL INSURANCE CO. LTD. A
If.
GENERAL INSURANCE DEV. OFFICERS ASSON. & ORS.
(Civil Appeal No. 2438 of 2008)
APRIL 3, 2008
B
,. ·t [DR. ARIJIT PASAYAT AND P. SATHASIVAM, JJ.]
General Insurance (Business Nationalization) Act, 1972
- ss. 16 (1) (g) and 17-A - Amendment of scheme for
Rationalization of Pay Scale and Other conditions of Service c
of Development Staff - Legality of - Held: Amendment is legal
- By virtue of introduction of s. 17-A Central Government was
empowered to amend the Scheme - However, the Officers
working within cost ratio not to be transferred unless required
in public interest - Policy regarding promotional prospects
D
and wage revision to be finalized - Service Law - Service
'r Conditions.
The question for consideration in the present appeals
and transfer cases is legality of General Insurance
(Rationalization of Pay Scales and Other Conditions of E
Service of Development Staff) Amendment scheme, 2003.
The Scheme purports to amend u/s 17-A of General
Insurance (Business Nationalization) Act, 1972, the earlier
Scheme framed uls 16 (1) (g) of the Act. The 2003 Scheme
was challenged by Development Officers on the ground F
that the same was without power, jurisdiction and legal
sanctity; and that the change would cause the Officers
financial loss and inconvenience and this would also
result in termination of service.
Allowing the appeals and disposing of transfer G
cases, the Court
. )
HELD: 1. By virtue of amendment of General
Insurance (Business Nationalization) Act, 1972 a new
1087 H
1088 SUPREME COURT REPORTS [2008] 5 S.C.R.
,_.,.
A Section 17-A was introduced in the Act and the Central
Government was empowered to amend the scheme under
Section 16 (1) (g) and the same was upheld by Supreme
Court. There is no scope for interference in these appeals.
However, it would be in the interests of the officers and
B the insurance companies, if the Development Officers who
work within the cost ratio are not transferred unless the "
t
transfer is required to be done in public interest. So far as
the promotional prospects and the wage revision are
concerned, a draft policy stated to have been formulated
c for the latter, be finalized within a period of three months.
[Paras 19 and 21] [1095-G-H; 1107-A-C] ·
Kishan Prakash Sharma and Ors. v. Union of India and
Ors. 2001 (5) SCC 212 - followed.
Ajoy Kumar Banerjee and Ors. v. Union of India and Ors.
D
1984 (3) sec 127 - referred to.
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
i •
2438 of 2008.
From the final Judgment and Order dated 31.03.2003 of
E the High Court of Punjab and Haryana at Chandigarh in Civil
Writ Petition No. 3204 of 2003
WITH
Civil Appeal Nos. 2439, 2440, 2441, 2442, 2450, 2454,
F 2456, 2437, 2444-45, 2446-47, 2448-49, 2453, 2451, 2452,
2455 of 2008, T.C. (C) No. 60, 61, 62, 63, 64, 73 and 2004, 42
of 2005 and 47 of 2005.
r
Vikas Singh, A.S.G., Ranjit Kumar, L.N. Rao, Mahabir
G Singh, R.C. Mishra, Dr. Meera Agarwal, Dinesh Mathur, H.K.
Puri, S.C. Dhand, V.M. Chauhan, S.K. Puri, Priya Puri, R.
Santhan Krishnan, K. Radha Rani, P. Vijaya Kumar, Praveen K.
Pandey, D. Mahesh Babu, Sunil Kumar Jain. S. Borthakur, Ajay { ~
K. Bhatia, Manish Pitale, Chander Shekhar Ashri, Sunita
Sharma, Sushma Suri, Romy Chacko, Arpit Gupta, Dinesh
H
NATIONAL INSURANCE CO. LTD. v. GENERAL INS. 1089
DEV. OFFICERS ASSON. & ORS. [PASAYAT, J.]
Verma and A.P. Mohanty for the appearing parties. A
DR. ARIJIT PASAYAT, J. 1. Leave granted.
2. These appeals are taken up alongwith Transfer Case
(Civil) Nos.60-64/2004, 73/2004, 42/2005 and 47/2005.
3. In all these cases the basic issue is the legality of General B
Insurance (Rationalisation of Pay Scales and Other Conditions
of Service of Development Staff) Amendment Scheme, 2003
(in short '2003 Scheme').
4. The present scheme -purports to amend the earlier c
scheme framed under Section 17A of the General Insurance
(Business Nationalization). Act, 1972 (in short the 'Act'). The
principal scheme was framed in 1976 in exercise of powers
under Section 16( 1)(g) of the Act. The scheme was amended
earlier in the years 1987, 1990 and 1996 and 2000. The
D
principal sch em~ of 1976 was challenged but the challenge was
r turned down and legality of the scheme was upheld by this Court.
Several writ petitions have been filed by Development Officers
questioning legality of the scheme on the ground that there was
unilateral change of service conditions of the Development
Officers in Class II category. The declaration sought for in the E
writ petitions was that administrative guidelines dated 5.2.2003
were without power, jurisdiction and legal sanctity. It was pointed
out that while changing service conditions of the Development
Officers in Class II category the service conditions of other
employees in Class I, Ill and IV were not touched. According to F
the Development Officers the following stipulations affected
them:
"Cost Norms: As per 2 (c) in the amendment, the proviso
of clause 7 of the original scheme of 1976 as amended
G
in 1990 was omitted: ·
The proviso inserted as per 1990 amendment is as follows:
"Provided that for the purposes of Para 11, 11A and 13
cost shall mean gross emoluments paid to the
H
1090 SUPREME COURT REPORTS [2008] 5 S.C.R.
A development officer during a performance year".
The Development Officer Marketing governed by cost
norms has to perform within stipulated cost ratio. As per
the pre amended scheme he gets the benefit of two tier
cost system i.e.
B
1. For the purpose of increment.
t
2. For the purpose of incentives.
5. Now by the 2003 amendment single cost system has
c been introduced whereby the cost system for the purposes has
been withdrawn by deleting the proviso to clause 7.
The comparison table is as follows:
Development Applicable in Applicable in relation
Officer increment to incentives.
D
Operating at As per 2003 Existing As per 2003 Existing
City/town Cost ratio cost ratio cost ratio cost ratio
ACiUes 7% 8% 7% 7%
B Cities/Towns 8% 9% 8% 8%
E
C Other Centres 10% 11% 10% 10%
Existing scheme was amended in 1996.
"Cost ratio" is the ratio expressed as percentage of cost
F incurred on a person of the development staff to the scheduled
-premium income procured through him during the concerned
year.
6. Cost relaxation was done from time to time by amending
the scheme. The 2003 amendment brought down the cost ratio
G by 1% in all centers thereby increasing the cost ratio beyond
stipulated limits. This resulted in monetary loss by way of
decrement. This would not only lead to reduction in salary but
would ultimately result in termination of service. 1 ~
7. Through the following illustration it is demonstrated that
H
NATIONAL INSURANCE CO. LTD. v. GENERAL INS. 1091
DEV. OFFICERS ASSON. & ORS. [PASAYAT, J.]
as to how the consequence of the 2003 amendment adversely A
affects a development officer having a basic pay of
Rs.13,630/-
SALARY COST PREMIUM TO BE
RATIO PROCURED.
B
·t EXISITING BASIC, DA, 8% Rs.31,88,000 /-
HRA,CCA
Rs.2,55,096
REVISED BASIC, DA,
HRA,CCA c
Rs.2,55,096
Add: Non-Core 7% Rs.44, 15, 000 I-
allowance
Rs. 54,000
Conveyance+
EntertainMent+ D
Phone+ TE
Rs.3,09,096
8. The above illustration shows how a development officer
put on constrain to maintain his cost in revised norms he has to E
procure an additional premium of Rs.12,27,000/- in this
competitive market scenario or other wise he will directly loose
the monetary benefits proportionate to his premium income.
9. The core benefits that a Development Officer gets is as
indicated in the original scheme in the shape of "gross F
emoluments" which is an aggregate of basic pay, dearness
allowance, hill station allowance, house rent allowance and city
compensatory allowance.
10. The Non-Core benefits such as Conveyance,
Entertainment, Telephone allowance, Travelling Expenses G
incurred to procure premium, are exempted from Income Tax
as per CBDT Rules. But through the 2003 Amendment the
. respondents have added the entire non core benefits to the cost
ratio. Thereby as per the above illustratibn the development
officer who was procuring a business of Rs.32,00,000/- H
1092 SUPREME COURT REPORTS [2008] 5 S.C.R.
A premium has to now procure a business of Rs.43,36,000/- to
maintain the cost ratio and to make himself eligible for an
increment.
11. Deletion of ASPI Provision.
s· As per the original scheme of 1976 para 12 indicates that
a development officer shall have to procure a minimum premium
income out of all or any of the following types of business namely: +
1. All risk insurance, 2. baggage insurance, 3. cash-in-
transit insurance, 4. cattle insurance, 5. insurance of
c pump sets and lifts, 6. machinery breakdown
insurance, 7. pedal cycle insurance, 8. personal
accident insurance for individuals including the janata
personal accident policies, 9. shop keepers or house
holders comprehensive insurance, 10. any other
D class of insurance notified by the Central Government
from time to time in this behalf. This has been omitted
by 2003 Amendment. -+-'
The premium earned in this category is called Adjusted
schedule premium income. If a development officer procures
E premium on this count the same is credited to his account with
double benefit. Such a premium earned by a development
officer gives him the benefit of adjusted premium income that is
ASPI as the specified business prescribed by the company from
time to time. If premium is not procured under this category the
F schedule premium income earned shall be notionally reduced
by an amount equal to the short fall and such reduction shall not
')'
be deemed as penalty.
Withdrawal of para 12 through the 2003 amendment pushes
the development officer into an extreme difficulty in achieving
G
the premium targets and fulfilling the cost norms. This not only
results in monetary loss in the form of non core allowance but
also leads to decrements thereby adversely affecting the service
i '
conditions.
H 12. Change in incentive Scheme
NATIONAL INSURANCE CO. LTD. v. GENERAL INS. 1093
DEV. OFFICERS ASSON. & ORS. [PASAYAT, J.]
Through paras 14, 14A and 15 a Development Officer A
-..<
would get Cost based Growth Incentive and Profit Incentive. The
growth incentive and cost saving profit incentive is based on
the performance of the development officer. The margin in cost
ratio as provided in the amended scheme 1987 are withdrawn
and replaced by one single incentive scheme which is totally B
based on the profitability as per the 2003 amendment. This
incentive is directly related to the claims arising due to accidents,
and natural calamities which are beyond the control of a
development officer. This is arbitrary as in any industry it is
universally accepted that the incentives to the marketing staff c
shall be linked to their sales performance.
13. No career prospects:
The 2003 amendment gives a development officer an
option to take a voluntary retirement or in the alternative to opt
D
to be in the administration. But the scheme is silent in regard to
career prospects of a development officer who opts to work in
the administration. Without specifying as to what would be the
...' t- promotional avenues for a person opting for working in
administration. Such an option would be meaningless and the
amended scheme would arbitrarily push the development officer E
out of the company.
14. Transfer:
A Development Officer who works in a particular area
invests his time and energy to familiarize himself with the market F
conditions and thereafter starts procuring business for the
Company. Now by the 2003 amendment the respondent has
-{ brought in transfer policy where a Development Officer can be
transferred to totally a new place even to a different State also.
This would not only make the life of a Development Officer difficult G
but he would not be in a position to procure business for a
company immediately. This action of the respondent virtually
. )-·
amounts to killing of the· insurance business.
It has been pointed out that because of the introduction of
H
1094 SUPREME COURT REPORTS [2008] 5 S.C.R.
A the scheme not only the Development Officers suffered financial
loss but there shall be great deal of inconvenience caused
because of the transfer modes.
A Development Officer because of his personal efforts
nourishes the locality and with his personal touch attracts more
B persons for being covered by insurance coverage. It is also
submitted that though there is provision for being transferred to +
administrative posts, it is not clear as to what are the promotional
prospects.
c 15. In response, learned counsel for the respondents
submitted that Section 17A provides for framing, amending,
adding to and altering schemes governing the conditions of
service of the various classes of employees in various Public
Sector General Insurance Companies. Section 17A(4) provides
D a copy of every such scheme is required to be laid before each
House of Parliament. Section 17A(6) provides that every such
scheme shall have effect notwithstanding any other law, award,
instruments etc. The Central Government has power under
Section 17A(2) to amend a scheme under Section 16(1)(g).
The impugned amendment scheme was made taking into
E consideration the recommendations made by Malhotra
Committee in its report which is known as "Malhotra Committee
Report on Reforms in the Insurance Sector".
16. It is the stand of the respondents that as a matter of
F fact the report was foundation for introduction of the Insurance
Regulatory and Development Authority Act, 1999 (in short 'IRDA
Act'). On the basis of the recommendations amendments were
made to the Act, Life Insurance (Business Nationalization) Act,
1956 and the Insurance Act, 1938 (in short the 'Insurance Act').
G The Malhotra Committee examined the state of the insurance
industry a.nd gave specific suggestions regarding the working
of Development Officers and other reforms inter-alia necessary
for the growth of the insurance industry.
{ .
17. It is pointed out by learned counsei for the respondents
H that it is not correct to say that in every case in routine manner
NATIONAL INSURANCE CO. LTD. v. GENERAL INS. 1095
DEV OFFICERS ASSON. & ORS. [PASAYAT, J.]
·__,I.
transfers will be affected. The cost ratio, it is pointed out, is the A
same as was in 1976. It is stated that normally a Development
Officer who functions within the cost ratio will not be transferred.
Presently, the practice is to transfer within 150 kms. It is also
stated that promotional norms for Class I, Ill and IV category
officers have been finalized. In case of Class II officers because B
of order of status quo passed by some High Courts the same is
at the draft stage and the same shall be finalized after disposal
of these cases. It is also pointed out that there is scope for wage
revision on a five year basis. The periods to which these cases
relate are 1st August, 2002 and 1st August, 2007. The revision c
has not been effected because of status quo order passed by
this Court and various High Courts which are the subject matter
of challenge in the Special Leave Petitions where leave has
been granted.
18. It is true as contended by learned counsel for the writ D
petitioners that a personal factor has a role to play
·~ notwithstanding the overall importance of the entity. With opening
of economy there is a remarkable change in the various sectors
including the insurance sector. Since modifications appear to
have been done for the purpose of rationalization, there is no E
scope for interference because essentially a policy decision is
immune from judicial review unless it is founded on no rational
basis or material to justify the change in policy.
19. It is to be noted that initially the Central Government
had amended the scheme under Section 16(1)(g) which was F
struck down by a three-Judge Bench of this Court in Ajoy Kumar
Banerjee and Ors. v: Union of India and Ors. (1984 (3) SCC
127). Thereafter the Act was amended in the year 1985 w.e.f.
the appointed day under the Act i.e. 1.1.1973. By virtue of this
amendment a new Section 17A was introduced in the Act and G
the Central Government was empowered to amend the scheme
under Section 16(1 )(g) and the authority was upheld in Kishan >
. )- Prakash Sharma and Ors. v. Union of India and Ors. (2001
(5) sec 212). It was inter-alia observed in the said case as
follows: H
1096 SUPREME COURT REPORTS [2008] 5 S.C.R.
A "2. The Preamble to the Act explains the purpose of the x. ....
Act as to provide for the acquisition and transfer of shares
in the Indian insurance companies and undertakings of
other insurers in order to serve better the needs of the
economy in securing development of general insurance
8 business in the best interest of the community and to ensure
that the operation of the economic system does not result
in concentration of wealth to the common detriment for the t
regulation and control of such business and for matters
connected therewith or incidental thereto. Section 2
c declared that it was for giving effect to the policy of the
State towards securing the principles specified in Article
39(c) of the Constitution and under Section 3(a) "acquiring
company" has been defined as any Indian insurance
company and where a scheme had been framed involving
the merger of one or more insurance companies in another
D
or amalgamation of two or more such companies means
the Indian insurance company in which any other company
~ -4
has been merged or the company which has been framed
as a result of amalgamation. Section 4 provides that on
the appointed day all the shares in the capital of every
E Indian insurance company shall be transferred to and
vested in the Central Government free of all trusts, liabilities
and encumbrances affecting these. Section 5 provides
for transfer of the undertakings of other existing insurers.
Section 6 provides for the effect of transfer of undertakings.
F Section 8 provides for provident fund, superannuation,
welfare or any other fund existing. Section 9 stipulates
that the Central Government shall form a government
company in accordance with the provisions of the
Companies Act to be known as "General Insurance
G Corporation of India" for the purpose of superintending,
controlling and carrying on the business of general
insurance. Section 10 stipulates that all shares in the capital
of every lndia.1 insurance company which shall stand
{ ...
transferred to and vested in the Central Government by
H virtue of Section 4 shall immediately on such vesting, stand
NATIONAL INSURANCE CO. LTD. v. GENERAL INS. 1097
··_.)., DEV OFFICERS ASSON. & ORS. [PASAYAT, J.]
transferred to and vested in the Corporation. Chapter 4 A
deals with the amounts to be paid for acquisition. Chapter
5 of the Act deals with the scheme for reorganisation of
general insurance business. Sections 16 and 17 are
important, to which we will advert to later and by
amendment of the Act by an Ordinance issued in 1984 B
~ and subsequently replaced by an Act in 1985, the said
provisions have been amended and a fresh provision was
introduced as Section 17-A to which we will advert later in ,
detail. After the Act came into force, several schemes
have been framed by the Board of Directors and two
Schemes, one dated 30-7-1977 amending the provisions
c
regarding sick leave and another Scheme pertaining to
the payments to be made to the provident fund were
challenged before this Court in the case of Ajay Kumar
Banerjee v. Union of India. The main ground of attack in
D
that writ petition is that the amended notification altering
the conditions of service is illegal as the Central
Government has no power to issue it under Section 16 of
the Act and as such the notification framing the scheme is
ultra vi res Section 16( 1) of the Act. It was contended that
once the merger of the Indian companies had taken place E
and the process of reorganisation was complete on 1-1-
1974 as stated before by forming the 4 insurance
companies by 4 Schemes framed in 1973, there could be
no further reorganisation of the general insurance business
and the merger of more insurance companies inasmuch F
i as in the amended Scheme there was no merger or
reorganisation contemplated unlike the 1974 Scheme.
Mere amendment of the terms and conditions of service
of the employees unconnected with or not necessitated
by reorganisation of the business or merger or G
. )
amalgamation of the companies could not fall within
Section 16(1 )(g) of the Act. It was also noticed by this
Court that under the Life Insurance Corporation Act and
the Banking Companies Act provisions have been made
to frame regulations independently of the reorganisation H
1098 SUPREME COURT REPORTS [2008] 5 S.C.R I
:-... -.-
A and there is no such comparable power under the Act
and, therefore, the Schemes impugned herein are made
without authority of the law. This contention found favou~
with this Court. On interpretation of the provisions it was
held that the power under Section 16( 1)(g) to frame scheme
B for rationalising the provisions regarding pay scales and
other terms and conditions of service of officers and other t
employees wherever necessary if unrelated to the object
envisaged in sub-section (2) of Section 16 of the Act will
not fall within the scope of exercise of powers and it would
c fall outside the same if the power exercised is beyond
delegation and in view of the fact that the Scheme of 1980
so far as it does not relate to the amalg~mation or merger
of the insurance company is not warranted by Section
16(1) of the Act. Ultimately, this Court held that the
Amended Scheme of 1980 was bad as beyond the scope
D
of the authority of the Central Government under the Act.
Further it was also made clear that the parties will be at ~
liberty to adjust their rights as if the Scheme had not been
framed and it was further made clear that this order will
not prevent the Government, if so advised, to frame any
E appropriate legislation or make any appropriate t
amendment giving power to the Central Government to lll
frame any scheme as it considers fit and proper.
xx xx xx
F 6. At this stage, we may notice the following amendments
effected to the Act:
(a) In the definition clause in Section 3(o), the expression
"scheme" was altered to mean not only one framed under
Section 16(1) but also "a scheme framed under Section
G
17-A".
(b) Section 16 of the principal Act was amended by
introducing an additional sub-section (8) after sub-section
(7) to the effect that the power to frame a scheme under
sub-section (1 ), and the power conferred under sub-section
{
-
H
NATIONAL INSURANCE CO. LTO. v. GENERAL INS. 1099
DEV. OFFICERS ASSON. & ORS. [PASAYAT, J.]
~
(6) to add to, amend or vary any scheme framed under A
this section, shall include the power to frame such scheme
with retrospective effect from a date not earlier than the
appointed day.
(c) Section 17-A is introduced in which a validation clause
and some consequential amendments have been added B
which we reproduce hereunder:
"17-A. (1) The Central Government may, by notification in
the Official Gazette, frame one or more schemes for
regulating the pay scales and other terms and conditions c
of service of officers and other employees of the
Corporation or of any acquiring company.
(2) A scheme framed under sub-section (1) may add to,
amend or vary any scheme framed under Section 16
including any addition, amendment or variation made 0
therein by notification under sub-section (6) of Section 16
~-
' with respect to rationalisation or revision of pay scales
and other terms and conditions of service of officers and
other employees of the Corporation or of any acquiring
company, to provide for further rationalisation or revision E
of such pay scales and other terms and conditions of
service notwithstanding that such further rationalisation or
revision is unrelated to, or unconnected with, the
amalgamation of insurance companies or merger
consequent on nationalisation of general insurance F
business.
·-y
(3) The Central Government may, by notification, add to,
amend or vary any scheme framed under this section.
(4) The power to frame a scheme under sub-section (1 ),
G
and the power conferred by sub-section (3) to add to,
amend or vary any scheme framed under this section,
shall include the power to frame such scheme, or, as the
case may be, to make such addition, amendment or
variation in any scheme framed under this section, with
H
1100 SUPREME COURT REPORTS (2008] 5 S.C.R.
)..._ -.
A retrospective effect from a date not earlier than the
appointed day.
(5) A copy of every scheme, and every amendment thereto,
framed under this section shall be laid, as soon as may be
after it is made, before each House of Parliament. ;
B ~
(6) The provisions of this section and of any scheme framed
under it shall have effect notwithstanding anything to the
contrary contained in any other law or any agreement,
award or other instrument for the time being in force.
c (7)(1) Notwithstanding anything contained in any judgment,
decree or order of any court, tribunal or other authority or
in any other law, agreement, award or other instnm1ent for
the time being in force, every scheme framed or purporting
to have been framed with retrospective effect under sub-
0 section (1) of Section 16 of the principal Act and every ~ ~
notification made or purporting to hJve been made with
retrospective effect under sub-section (6) of that section
before the commencement of the General Insurance
Business (Nationalisation) Amendment Ordinance, 1984
E shall be, and shall be deemed always to have been, for all
purposes, as valid and effective as if the amendment
made in the said Section 16 by Section 3 of this Ordinance t
,
had been part of that section and had been in force at all
material times.
F (2) Notwithstanding anything contained in any judgment,
decree or order of any court, tribunal or other authority or
in any other law, agreement, award or other instrument for
the time being in force,-
(a) every scheme framed, or purporting to have been
G
framed, by the Central Government under sub-section (1)
of Section 16 of the principal Act; and f ..
(b) every notification made, or purporting to have been
made by the Central Government under sub-section (6) of
H the said Section 16,
NATIONAL INSURANCE CO. LTD. v. GENERAL INS. 1101
DEV. OFFICERS ASSON. & ORS. [PASAYAT, J.]
before the commencement of the General Insurance A
Business (Nationalisation) Amendment Ordinance, 1984,
insofar as such scheme or notification provides (whether
with or without retrospective effect) for any rationalisation
or revision of pay scales or other terms and conditions of
service of officers and other employees of the Corporation B
or of any acquiring company, otherwise than in relation to,
or in connection with, amalgamation of insurance
companies of merger consequent on nationalisation of
general insurance business shall be, and shall be deemed
always to have been, for all purposes, as valid and effective c
as if Section 17-A, as inserted in the principal Act by
Section 4, of this Ordinance had been part of the principal
Act, and had been in force at all material times and such
scheme or notification insofar as it provides as aforesaid
had been framed or made, under the said Section 17-A:
D
~-
Provided that nothing in this section shall apply to, or
in relation to, the notification dated the 30th day of
September, 1980, framing the General Insurance
(Nationalisation and Revision of Pay Scales and
Other Conditions of Service of Supervisory, Clerical E
and Subordinate Staff) Second Amendment Scheme,
1980.
Explanation.-ln this section, the expressions
"acquiring company" and "Corporation" shall have
the meanings respectively assigned to them in the F
principal Act."
Xx· xx xx
10. Prior to 1972, there were about 106 general insurance
companies both of Indian and foreign origin. The conditions G
of service of the employees of the said insurance
companies were governed by the respective contracts of
service between the companies and the employees. The
set-up, working, management and employment of staff by
the erstwhile insurance companies showed no uniformity. H
1102 SUPREME COURT REPORTS [2008] 5 S.C.R.
i...-
A The erstwhile companies were managed in diverse
managerial systems and no uniform pattern of
management could be discovered by the Central
Government after the nationalisation. There was a
pronounced disparity between one company and the other
B at all levels in the matter of remuneration and designations
for similar posts. Employees of different companies were
holding different designations and were paid differently
for the same kind of work at the same station. Some
companies gave very high-sounding designations and paid
c salaries which were not commensurate with the work. So
the necessity for rationalisation of the entire structure of
general insurance business, including designations, pay
scales and other conditions of service arose.
Xx )()( )()(
D
17. The challenge now to the enactment is that this Court
having held, the expression "scheme for reorganisation of
general insurance business" will not include a scheme
made after the reorganisation is complete; that no further
schemes, except in connection with the reorganisation of
E the general insurance business and merger of more
insurance companies could be effected and the impugned
Scheme did not involve any such merger; that therefore,
this Scheme is ultra vires the Act; that the provision enabling
the Central Government to frame the Scheme is bad and
F the provision which gives retrospectivity to the said
enactment is equally bad as there are no guidelines in
Section 17-A. Though there can be no limitation regarding
providing better terms and conditions of service the same
cannot be modified to the detriment of the workmen. The
G power that has ·been conferred upon the Central
Government to frame the Scheme without guidelines is
bad and the guidelines have to be read into the provisions
in such a manner that the benefit which is already given to
the workmen should not be taken away and there should
H be enough scope for collective bargaining particularly in
NATIONAL INSURANCE CO. LTD. v. GENERAL INS. 1103
. ,
-~
DEV. OFFICERS ASSON. & ORS. [PASAYAT, J.]
the absence of consultation and when there is no limitation A
on upward revision, the conferment of the power upon the
authority co.ncerned is bad.
18. So far as the delegated legislation is concerned, the
case-law will throw light as to the manner in which the
same has to be understood and in each given case we B
1 have to understand the scope of the provisions and no
. uniform rule could be laid down. The legislatures in India
have been held to possess wide power of legislation
subject, however, to certain limitations such as the
legislature cannot delegate essential legislative functions c
which consist in the determination or choosing of the
legislative policy and of formally enacting that policy into
a binding rule of conduct. The legislature cannot delegate
uncanalised and uncontrolled power. The legislature must
set the limits of the power delegated by declaring the D
policy of the law and by laying down standards for guidance
•~ of those on whom the power to execute the law is conferred.
Thus the delegation is valid only when the legislative policy
and guidelines to implement it are adequately laid down
and the delegate is only empowered to carry out the policy E
within the guidelines laid down by the legislature. The
legislature may, after laying down the legislative policy,
confer discretion on an administrative agency as to the
execution of the policy and leave it to the agency to work
out the details within the framework of the policy. When F
the Constitution entrusts the duty of law-making to
Parliament and the legislatures of States, it impliedly
prohibits them to throw away that responsibility on the
shoulders of some other authority. An area of compromise
is struck that Parliament cannot work in detail the various
G
. requirements of giving effect to the enactment and,
I therefore, that area will be left to be filled in by the
i
~
delegatee. Thus, the question is whether any particular
}
legislation suffers from excessive delegation and in
ascertaining the same, the scheme, the provisions of the
H
1104 SUPREME COURT REPORTS [2008] 5 S.C.R.
A statute including its preamble, and the facts and
circumstances in the background of which the statute is
enacted, the history of the legislation, the complexity of
the problems which a modern State has to face, will have
to be taken note of and if, on a liberal construction given
B to a statute, a legislative policy and guidelines for its -...
execution are brought out, the statute, even if skeletal, will t-
be upheld to be valid but this rule of liberal construction
should not be carried by the court to the extent of always
trying to discover a dormant or latent legislative policy to
sustain an arbitrary power conferred on the executive.
-
c These very tests were adopted in Ajoy Kumar Banerjee
case also to examine whether there is excessive delegation
in framing schemes and reading the preamble, the scheme
and the other provisions of the enactment taking note of
the general economic situation in the country, the authorities
D
concerned had to frame appropriate schemes. Therefore,
it is not open to the petitioners to contend that there is
excessive delegation in relation to the enactment to frame
schemes.
E 19. In Ajoy Kumar Banerjee case this Court after holding
that there is no excessive delegation observed that the
Scheme framed was ultra vires the enactment for the
Scheme could only be framed once. Now the argument is
that once a scheme is framed no further scheme should
F be allowed to be framed. If the legislature recognises the
fact the rationalisation resulting from the merger of several
companies are not yet over and on that basis enacts a law
to enable the Government to frame appropriate schemes,
we do not think that such step by the legislature is arbitrary
or irrational as to be violative of Article 14 of the
G
Constitution. In Ajoy Kumar Banerjee case this Court
pointed out that though there is power in the Government
to revise the pay scales, it cannot exercise the power .t •
more than once at the time of merging different companies
for the purpose of rationalisation and this power could
H
NATIONAL INSURANCE CO. LTD. v. GE~ 1 '.:R!. '- ;:~3 1105
DEV. OFFICERS ASSON. & ORS. [PASAYAT, J.]
J have been exercised no further. But now the enactment A
itself specifically provides that every scheme framed or
purporting to have been framed by the Central Government
under Section 16(1) of the principal Act and every
notification made or purporting to have been made
thereunder insofar as such scheme or notification provides B
for rationalisation or revision of pay scales or other terms
--t and conditions of the officers and other employees of the
Corporation are deemed always to have been for all
purposes as valid and effective as made under Section
17-A of the Act. The retrospective effect given to the c
scheme is only to overcome the difficulty pointed out by
this Court in Ajoy Kumar Banerjee case. That lacuna
having been overcome, it is not open to the petitioners to
contend that retrospective effect given is violative of
Articles 14, 19 and 21 of the Constitution. Validation of
D
invalid rule by amending the main enactment under which
it is made is a well-known legislative device approved by
this Court.
Xx xx xx
24. The Central Government, in exercise of the powers E
conferred under Section 16(1 )(g) of the Act, framed three
Schemes for three different categories of employees
relating to (1) supervisory, clerical and subordinate staff;
(it) officers; and (iit) development staff. The Schemes also
provided, inter alia, various provisions like fixation of pay F
on promotion, increments, provident fund and gratuity, etc.
'-1 When the process of categorisation and rationalisation
was in progress, it was noticed that as per the 1974
Scheme, contribution to the provident fund was @ 8 per
cent of the basic salary and dearness allowance with an G
equal contribution of GIC or any of its subsidiaries.
However, LIC and nationalised banks were giving
provident fund at different rates. So as to keep parity with
~
other similar organisations, the Scheme was corrected
by an amending notification issued on 1-6-1976 and it H
1106 SUPREME COURT REPORTS [2008] 5 S.C.R.
A was provided that the provident fund shall be contributed
by every employee at the rate of 10% of the basic pay plus
.... -
personal pay and special pay, if any, in place of 8% of the
basic salary and dearness allowance.
Xx xx xx
B
26. The stand of the respondents is that amendments
~
were made while the process of rationalisation of pay
scales and other service conditions were still in progress
and the process had not been finally completed to achieve
c uniformity and inter se rationalisation in terms and
conditions of service of different categories of employees
of merged companies. In 1977 various labour unions
presented a charter of demands in relation to revision of
pay scales and service conditions. The Scheme of 1974
contained a provision to the effect that the provisions of
D
the Scheme relating to scales of pay, dearness allowance
etc. will continue to be in force till the Government modified
the same. After considering the demands of the unions
and the view of the management, the Government
formulated guidelines and requested the management to
E hold consultations and discussions with the unions so that
final views of the unions may be known and may be taken
into account by the Government before modifying the pay
scales, etc. But this course will not indicate that there was
an obligation cast on the Government to formally negotiate
F with the unions. However, in keeping with the democratic
tradition and to maintain harmonious industrial relations
the management had several rounds of discussions with
the four major registered unions. The procedure of
consultations and discussions was adopted in order to
G narrow down the differences to the minimum and to ensure
that the viewpoint of the employees was kept in mind before
any scheme was finalised by the Government.
~
20. It was further clarified that if the scheme is prima facie
discriminated it is open to challenge.
H
NATIONAL INSURANCE CO. LTD. v. GENERAL INS. 1107
DEV. OFFICERS ASSON. & ORS. [PASAYAT, J.]
21. In para 28 it was held that there was no need for any A
consultation with the employees. When the changes introduced
/
by the scheme are considered in the background of the position
in law and the decision of this Court by a Constitution Bench in
Prakash Sharma's case (supra) there is no scope for
interference in these appeals. However, it would be in the B
interests of the officers and the insurance companies if the
Development Officers who work within the cost ratio are not
transferred unless the transfer is required to be done in public
interest. So far as the promotional prospects and the wage
revision are concerned, a draft policy stated to have been c
formulated for the latter be finalized within a period of three
months. The writ petitions filed in different High Courts stand
dismissed because of this judgment. Consequentially, the
interim orders passed which form the subject matter of challenge·
in the appeals are vacated subject to the directions given supra.
D
22, The appeals are allowed. The transfer petitions stand
) t· disposed of.
K.K.T. Appeals allowed,
Transfer cases disposed of.
E
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